-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QKf+KcABKcaiFyd2ScD2Wqd2VVQtF0BZ1NtRsh24RlDz6vDGpWnXc6rykrBS8YWI 5Re7cOZ49vSTPj0JV78lbg== 0000950124-97-004039.txt : 19970806 0000950124-97-004039.hdr.sgml : 19970806 ACCESSION NUMBER: 0000950124-97-004039 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19970805 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ITALIAN PASTA CO CENTRAL INDEX KEY: 0000849667 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 841032638 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-32827 FILM NUMBER: 97651267 BUSINESS ADDRESS: STREET 1: 1000 ITALIAN WAY CITY: EXCELSIOR SPRINGS STATE: MO ZIP: 64024 BUSINESS PHONE: 8165026000 MAIL ADDRESS: STREET 1: 1000 ITALIAN WAY CITY: EXCELSIOR SPRINGS STATE: MO ZIP: 64024 S-1 1 FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ AMERICAN ITALIAN PASTA COMPANY (Exact name of registrant as specified in its charter) DELAWARE 2099 84-1032638 (State or other jurisdiction (Primary Standard Industrial (IRS Employer of incorporation or Classification Code Number) Identification No.) organization)
1000 ITALIAN WAY EXCELSIOR SPRINGS, MISSOURI 64024 (816) 502-6000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) TIMOTHY S. WEBSTER PRESIDENT AND CHIEF EXECUTIVE OFFICER AMERICAN ITALIAN PASTA COMPANY 1000 ITALIAN WAY EXCELSIOR SPRINGS, MISSOURI 64024 (816) 502-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ Copies to: JAMES A. HEETER, ESQ. JOHN J. MCCARTHY, JR., ESQ. SONNENSCHEIN NATH & ROSENTHAL DAVIS POLK & WARDWELL 4520 MAIN STREET, SUITE 1100 450 LEXINGTON AVENUE KANSAS CITY, MISSOURI 64111 NEW YORK, NEW YORK 10017 (816) 932-4400 (212) 450-4000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____________ If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
============================================================================================================== PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------- Class A Convertible Common Stock, $.001 par value........... $115,000,000 $34,848.49 ==============================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: one to be used in connection with a United States and Canadian offering of the registrant's Class A Common Stock (the "U.S. Prospectus") and one to be used in connection with a concurrent international offering of the Class A Common Stock (the "International Prospectus" and, together with the U.S. Prospectus, the "Prospectuses"). The International Prospectus will be identical to the U.S. Prospectus except that it will have a different front cover page. The U.S. Prospectus is included herein and is followed by the front cover page to be used in the International Prospectus. The front cover page for the International Prospectus included herein has been labeled "Alternate International Cover Page." 3 PROSPECTUS (Subject to Completion) Issued August 5, 1997 Shares AIPC LOGO American Italian Pasta Company CLASS A COMMON STOCK ------------------------ OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, SHARES ARE BEING SOLD BY THE COMPANY AND SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDER. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF CLASS A COMMON STOCK BY THE SELLING STOCKHOLDER. OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. ------------------------ THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK CONSISTING OF THE CLASS A COMMON STOCK OFFERED HEREBY AND CLASS B COMMON STOCK. SEE "DESCRIPTION OF CAPITAL STOCK." HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE ON EACH MATTER SUBMITTED TO A VOTE OF STOCKHOLDERS. THE CLASS B COMMON STOCK IS NON-VOTING EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES AND AS REQUIRED BY LAW. ALL HOLDERS OF COMMON STOCK ARE ENTITLED TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS, IF ANY, AS MAY BE DECLARED FROM TIME TO TIME BY THE BOARD OF DIRECTORS. ------------------------ APPLICATION HAS BEEN MADE FOR LISTING OF THE CLASS A COMMON STOCK ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "PLB." ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PRICE $ A SHARE ------------------------
Underwriting Price to Discounts and Proceeds to Proceeds to Selling Public Commissions(1) Company(2) Stockholder -------- -------------- ----------- ------------------- Per Share............... $ $ $ $ Total(3)................ $ $ $ $
- ------------ (1) The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriters." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company and the Selling Stockholder have granted to the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of additional Shares of Class A Common Stock at the Price to Public less Underwriting Discounts and Commissions, for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Stockholder will be $ , $ , $ , and $ , respectively. See "Underwriters." ------------------------ The Shares of Class A Common Stock are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the Shares of Class A Common Stock will be made on or about , 1997 at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in immediately available funds. ------------------------ MORGAN STANLEY DEAN WITTER ALEX. BROWN & SONS INCORPORATED GOLDMAN, SACHS & CO. GEORGE K. BAUM & COMPANY , 1997 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. 4 [Picture of Branded Pasta Products] AIPC'S PASTA LABELLA(R) BRANDED PASTA [Picture of Private Label and Branded Pasta Products] AIPC'S PRIVATE LABEL AND BRANDED PASTA [Picture of CPC Products to be produced by AIPC] MUELLER'S(R) IS A REGISTERED TRADEMARK OF CPC INTERNATIONAL INC. PRODUCTS TO BE PRODUCED BY AIPC FOR CPC INTERNATIONAL INC. 2 5 NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING STOCKHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE CLASS A COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------------------ FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY, BY THE SELLING STOCKHOLDER OR BY ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE CLASS A COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY, THE SELLING STOCKHOLDER AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE CLASS A COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................... 4 Risk Factors........................... 10 Use of Proceeds........................ 16 Dividend Policy........................ 17 Capitalization......................... 18 Dilution............................... 19 Selected Financial and Other Data...... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 22 Business............................... 31 Management............................. 42
PAGE ---- Certain Relationships and Related Transactions......................... 48 Principal and Selling Stockholders..... 51 Description of Capital Stock........... 53 Shares Eligible for Future Sale........ 56 Certain United States Federal Income Tax Considerations for Non-U.S. Holders.............................. 58 Underwriters........................... 61 Legal Matters.......................... 64 Experts................................ 65 Additional Information................. 65 Index to Audited Financial Statements........................... F-1
------------------------ This Prospectus contains forward-looking statements and information based on management's beliefs or assumptions made by and information currently available to management that involve risks and uncertainties. If one or more of these risks or uncertainties materialize, or should such assumptions prove incorrect, the Company's actual results may be materially different from those anticipated. Factors that may cause such differences include, but are not limited to, those discussed under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company undertakes no obligation to update any such forward-looking statements to reflect future events or developments. ------------------------ CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE CLASS A COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS." 3 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and Financial Statements, including the Notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, all references in this Prospectus to (i) the "Company" and "AIPC" shall mean American Italian Pasta Company, a Delaware corporation, and its predecessor unless the context otherwise requires; and (ii) "pasta" shall mean dry pasta, including dry pasta used in shelf-stable, frozen and canned pasta products. Unless otherwise indicated, all information in this Prospectus has been adjusted to give effect to the Recapitalization (as defined herein) and assumes the U.S. Underwriters' over-allotment option is not exercised. THE COMPANY OVERVIEW AIPC is the third largest and one of the fastest-growing producers and marketers of pasta in North America. The Company commenced operations in 1988 with the North American introduction of new, highly-efficient durum wheat milling and pasta production technology. Management believes that the Company's singular focus on pasta, vertically-integrated facilities, continued technology leadership and development of a highly-skilled workforce enable AIPC to produce high-quality pasta at costs significantly below those of most of its competitors. Management believes that the combination of the Company's favorable cost structure, the higher average age of its competitors' North American pasta production equipment and the growing pasta consumption in North America creates significant opportunities for continued growth. The Company's revenue and operating income before product introduction costs were $121.6 million and $16.7 million, respectively, for the calendar year ended December 31, 1996, and grew at compound annual growth rates ("CAGR") of 33% and 33%, respectively, over the five-year period ended December 31, 1996. During the nine-month period ended June 30, 1997, the Company had revenue of $93.6 million and an operating margin before product introduction costs of 15.9%. The Company has rapidly established a significant market presence in North America by developing strategic customer relationships with food industry leaders that have substantial pasta requirements. North American pasta consumption exceeded 5.0 billion pounds in 1995 and is projected to grow to approximately 5.8 billion pounds by 2002 based on industry and trade sources and the Company's own analysis. The Company has a long-term supply agreement with Sysco Corporation ("Sysco"), the nation's largest marketer and distributor of foodservice products. In 1998, AIPC will become the exclusive producer of Mueller's(R), the largest pasta brand in the United States, pursuant to a recent long-term manufacturing and distribution agreement with CPC International Inc. ("CPC"). CPC has announced its intention to close its current pasta production facility by December 1997. AIPC is also the primary supplier of pasta to Sam's Wholesale Club ("Sam's Club"), the largest club store chain in the United States, and supplies private label and branded pasta to six of the 10 largest grocery retailers in the United States, including Wal*Mart, A&P, Publix, Albertsons, American Stores and Winn-Dixie. In addition, AIPC has developed supply relationships with leading food processors, such as Pillsbury, General Mills and Kraft, which use the Company's pasta as an ingredient in branded food products. The Company produces more than 80 dry pasta shapes in two vertically-integrated production and distribution facilities, strategically located in Excelsior Springs, Missouri and Columbia, South Carolina. The construction of the Missouri plant in 1988 represented the first use in North America of a vertically-integrated, high-capacity pasta plant using Italian pasta production technology. Management believes that this plant continues to be among the most efficient and highly-automated pasta facilities in North America. The South Carolina plant, which commenced operations in 1995, produces only pasta shapes conducive to high-volume production and employs a highly-skilled, self-managed workforce. Management believes that the South Carolina plant is the most efficient pasta facility in North America in terms of productivity and conversion cost per pound. To meet the significant volume requirements of the CPC agreement and support future growth, the Company commenced a capital expenditure program in 1997 to nearly double the 4 7 Company's annual pasta production capacity and add a highly-automated durum wheat mill to its South Carolina plant, with completion scheduled for 1998. OPERATING STRATEGY The Company's operating strategy is to grow revenues and profitability by offering customers the highest quality pasta products at competitive prices with superior customer service. Key elements of the Company's operating strategy are: - Continue to Lead the Industry as the Lowest Cost Producer of High Quality Pasta. AIPC has successfully implemented production and capital investment strategies designed to achieve low-cost production of high-quality products. AIPC has distinguished itself from most major pasta producers by vertically integrating the durum wheat milling function with the production process and strategically locating its distribution centers. Management believes that its facilities are among the most efficient pasta production facilities in North America in terms of productivity and conversion cost per pound, and that its vertically-integrated processes produce pasta of superior color, texture, flavor and consistency. The Company expects to realize additional operating efficiencies through the completion of the current expansion program at its South Carolina and Missouri facilities and ongoing improvement programs. - Expand Customer-Driven Strategy. The Company is committed to developing and maintaining strategic relationships with customers who (i) are food industry leaders requiring a significant volume of high-quality pasta; (ii) have committed marketing and sales resources to growing their pasta business; and (iii) pursue long-term supply arrangements. The Company has followed this strategy since commencing operations in 1988, beginning with an agreement with Sysco, and has developed strategic supply relationships with CPC, Sam's Club and leading grocery retailers. Management believes that these strategic relationships increase operating efficiencies, enhance AIPC's investment in new technology, create distribution synergies, and enable closer involvement in its customers' pasta businesses. - Provide Superior Customer Service. The Company develops and enhances customer relationships by providing superior service and technical support to its customers. The Company has invested heavily in the development of a broad range of customer service programs, including electronic data interchange ("EDI") and efficient consumer response ("ECR") which streamline the order, invoicing and inventory management functions. The Company provides marketing, technical and service support to its customers by assisting customers with supply and category management decisions, producing pasta to its customers' specifications and making operational recommendations to its customers using pasta as an ingredient in their food products. GROWTH STRATEGY The Company continues to implement its growth strategy, which builds on the Company's operating strategy and industry trends. Key elements of the Company's growth strategy are: - Successfully Implement CPC Business Expansion. The Company was recently selected to be the exclusive producer of CPC's Mueller's brand pasta, the largest pasta brand in North America. Upon completion of AIPC's capacity expansion in 1998, management anticipates CPC's annual volume requirements will represent an approximately 60% increase over the Company's fiscal 1997 production run rate. Management believes that the Company's experience in servicing large pasta supply agreements and its current capacity expansion program will enable AIPC to meet the current CPC volume requirements and support potential future growth. - Pursue Strategic Alliances. The Company believes that commercial users and marketers of pasta will continue to require increasing quantities of pasta and that a greater portion of these requirements will be outsourced to more efficient producers of high-quality pasta, such as AIPC. Management has identified additional strategic opportunities with commercial users and marketers of pasta which may result in incremental growth, new product development and cost savings opportunities in the future. 5 8 - Secure Additional Private Label Customers. The Company intends to continue to grow its private label customer base and secure additional private label customers by continuing to offer quality products, competitive pricing, category management and superior customer service. Management believes that AIPC's prospects for growth in the private label market have been enhanced since Borden Foods Holdings Corporation ("Borden"), historically the largest private label supplier in North America, announced its intention to exit the private label pasta business in 1997. - Continue Product Innovation. In 1995, the Company introduced Pasta LaBella(R) flavored pasta, a line of all natural, full-flavored pasta products utilizing patented flavoring technology and AIPC's proprietary production process. In addition to pursuing increased sales with institutional customers, the Company is exploring potential sales and marketing alliances to expand retail distribution of Pasta LaBella flavored pasta. AIPC also intends to continue assisting its customers with innovative products and packaging, and the development of additional value-added products intended to generate higher margins than traditional pasta products. The Company was incorporated under the laws of the State of Delaware in 1991, and is the successor by merger of a Colorado corporation incorporated in 1986. The Company's executive offices are located at 1000 Italian Way, Excelsior Springs, Missouri 64024, and its telephone number is (816) 502-6000. The Company's home page on the World Wide Web is located at http://www.pastalabella.com. Information contained in the Company's home page shall not be deemed to be a part of this Prospectus. RECAPITALIZATION Prior to the consummation of the Offering, the Company will amend and restate its Certificate of Incorporation (the "Charter") and effect a recapitalization (the "Recapitalization"), pursuant to which each share of common stock and Class A common stock of the Company outstanding immediately prior to the Recapitalization will be converted into shares of Class A Convertible Common Stock, par value $.001 per share, of the Company ("Class A Common Stock"), and certain of the shares of Class A Common Stock held by the Morgan Stanley Stockholders (as defined herein) will be converted into Class B Convertible Non-Voting Common Stock, par value $.001 per share, of the Company ("Class B Common Stock"). Shares of Class A Common Stock held by the Morgan Stanley Stockholders and certain related persons are, in certain circumstances, convertible into Class B Common Stock and vice versa. The Morgan Stanley Stockholders have informed the Company that following the consummation of the Offering they intend to convert such number of their shares of Class B Common Stock into Class A Common Stock so that, following such conversion, the Morgan Stanley Stockholders will own, in the aggregate, 49% of the outstanding Class A Common Stock. Shares of Class A Common Stock held by persons other than the Morgan Stanley Stockholders and such related persons are not convertible into Class B Common Stock. Unless otherwise indicated, all references in this Prospectus to "Common Stock" shall mean, collectively, the Class A Common Stock and the Class B Common Stock. See "Description of Capital Stock -- General." OWNERSHIP As of the date of this Prospectus, The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF"), Morgan Stanley Capital Partners III, L.P. and certain affiliated funds (the "MSCP Funds" and with MSLEF, the "Morgan Stanley Stockholders") own approximately % of the outstanding Common Stock. Upon consummation of the Offering, the Morgan Stanley Stockholders will own approximately % of the outstanding Common Stock (approximately % of the outstanding Common Stock if the U.S. Underwriters' over-allotment option is exercised in full). The Morgan Stanley Stockholders are not selling any Common Stock in connection with the Offering. See "Principal and Selling Stockholders" and "Underwriters." 6 9 THE OFFERING Class A Common Stock offered by: The Company........................................ Shares The Selling Stockholder............................ Shares Total......................................... Shares Class A Common Stock offered in: U.S. Offering...................................... Shares International Offering............................. Shares Total......................................... Shares Common Stock outstanding after the Offering.......... Shares(1) Use of proceeds...................................... The net proceeds to the Company from the Offering will be used to repay existing indebtedness, fund expansion of the Company's facilities and for general corporate purposes. The Company will not receive any proceeds from the sale of Class A Common Stock by the Selling Stockholder. See "Use of Proceeds." Proposed New York Stock Exchange Symbol.............. PLB
- ------------------------- (1) Does not include the U.S. Underwriters' over-allotment option. Includes shares of Class B Common Stock. Excludes (i) shares and shares, respectively, of Class A Common Stock reserved for issuance upon the exercise of outstanding stock options under the Company's 1992 Non- Statutory Stock Option Plan (the "1992 Plan") and 1993 Non-Qualified Stock Option Plan (the "1993 Plan"); and (ii) shares and shares, respectively, of Class A Common Stock available for future grants under the 1992 Plan and the 1993 Plan. See "Management -- Stock Option Plans." RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered in evaluating an investment in the Class A Common Stock. 7 10 SUMMARY FINANCIAL AND OPERATING DATA The following summary financial and operating data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Financial Statements of the Company, including the Notes thereto, appearing elsewhere in this Prospectus. In 1996, the Company changed its fiscal year end from December 31 to the last Friday of September. This change resulted in a nine-month fiscal period ended September 30, 1996, and will result in a 53-week year for fiscal 1997, and a 52-or 53-week year for all subsequent fiscal years. The Company's first three fiscal quarters end on the Friday last preceding December 31, March 31, and June 30 of each year. For purposes of this Prospectus, the 1996 fiscal year is described as the nine-month fiscal period ended September 30, 1996, and the nine-month 1996 and 1997 interim periods are described as having ended June 30. The statement of operations data of the Company for the calendar year ended December 31, 1996 and the nine-month period ended June 30, 1996 are included herein only for comparison purposes.
NINE-MONTH NINE-MONTH CALENDAR FISCAL PERIOD PERIOD ENDED FISCAL YEAR ENDED DECEMBER 31, YEAR ENDED ENDED JUNE 30, ------------------------------------- DECEMBER 31, SEPTEMBER 30, --------------------- 1992 1993 1994 1995 1996 1996 1996 1997 ---- ---- ---- ---- ------------ ------------- ---- ---- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES) STATEMENT OF OPERATIONS DATA: Revenues..................... $39,049 $47,872 $69,465 $92,903 $121,621 $92,074 $86,514 $93,616 Cost of goods sold........... 28,750 35,081 54,393 73,851 89,704 68,555 65,697 67,821 Plant expansion costs(1)..... -- 1,171 484 2,065 -- -- 425 -- ------- ------- ------- ------- -------- ------- ------- ------- Gross profit................. 10,299 11,620 14,588 16,987 31,917 23,519 20,392 25,795 Selling and marketing expense.................... 2,888 2,883 3,792 5,303 11,682 8,676 6,625 8,078 General and administrative expense.................... 2,077 2,049 1,951 2,930 3,498 2,805 2,741 2,855 ------- ------- ------- ------- -------- ------- ------- ------- Operating profit before product introduction costs...................... 5,334 6,688 8,845 8,754 16,737 12,038 11,026 14,862 Product introduction costs(2)................... -- -- -- -- 6,986 5,753 3,150 3,458 ------- ------- ------- ------- -------- ------- ------- ------- Operating profit............. 5,334 6,688 8,845 8,754 9,751 6,285 7,876 11,404 Interest expense, net........ 5,396 3,210 4,975 8,008 10,575 8,023 8,030 7,800 ------- ------- ------- ------- -------- ------- ------- ------- Income (loss) before income tax and extraordinary loss....................... (62) 3,478 3,870 746 (824) (1,738) (154) 3,604 Income tax................... -- (3,221) 1,484 270 (307) (656) (87) 1,375 Extraordinary loss, net of income tax(3).............. 2,639 -- 204 -- 1,647 1,647 1,647 -- ------- ------- ------- ------- -------- ------- ------- ------- Net income (loss)............ $(2,701) $ 6,699 $ 2,182 $ 476 $ (2,164) $(2,729) $(1,714) $ 2,229 ======= ======= ======= ======= ======== ======= ======= ======= Pro forma net income (loss) per common share(4)........ Pro forma weighted average common shares outstanding(4)............. OTHER DATA: EBITDA(5).................... $ 7,993 $ 9,495 $12,408 $13,836 $ 16,853 $12,369 $13,212 $19,465 EBITDA as a percent of revenues(5)................ 20.5% 19.8% 17.9% 14.9% 13.9% 13.4% 15.3% 20.8% Revenue per employee (end of period)............ $ 209 $ 244 $ 288 $ 361 $ 437 NM NM NM Working capital excluding current maturities of long-term debt (average for the period) as a percent of revenues................... 17.3% 14.2% 12.0% 4.6% 6.5% NM NM NM
AS OF JUNE 30, 1997 ------------------------- ACTUAL AS ADJUSTED(6) ------ -------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................... $ 2,612 $ Working capital............................................. 13,276 Total assets................................................ 146,110 Long-term debt, less current maturities..................... 89,500 Stockholders' equity........................................ 41,625
(footnotes appear on following page) 8 11 (footnotes from previous page) - ------------------------- (1) Plant expansion costs include incremental direct and indirect manufacturing and distribution costs which are incurred as a result of construction, commissioning and start-up of new capital assets. These costs are expensed as incurred but are unrelated to current production and, therefore, are reported as a separate line item in the statement of operations. (2) Product introduction costs include the incremental selling and marketing expenses, including amortization of product placement or "slotting" fees, related to the Company's launch of its Pasta LaBella flavored pasta products into the U.S. retail grocery market. (3) Represents losses due to early extinguishment of long-term debt, net of income taxes. (4) Earnings per share is presented on a pro forma basis giving effect to the consummation of the Recapitalization in connection with the Offering. (5) EBITDA represents earnings before interest, income taxes, depreciation and amortization, thereby removing the effect of certain non-cash charges on income. Management believes that EBITDA is a meaningful measure of operating performance, cash generation and ability to service debt. However, EBITDA should not be considered as an alternative either to: (i) net earnings (determined in accordance with U.S. generally accepted accounting principles ("GAAP")); (ii) operating cash flow (determined in accordance with GAAP); or (iii) liquidity. There can be no assurance that the Company's calculation of EBITDA is comparable to similarly-titled items reported by other companies. (6) Adjusted to give effect to the Offering of shares of Class A Common Stock at an assumed initial public offering price per share of $ and the application of the net proceeds to the Company therefrom. See "Use of Proceeds" and "Capitalization." 9 12 RISK FACTORS In addition to the other information in this Prospectus, prospective investors should carefully consider the following risk factors in evaluating an investment in the shares of Class A Common Stock offered hereby. DEPENDENCE ON MAJOR CUSTOMERS Historically, a limited number of customers have accounted for a substantial portion of the Company's revenues. During 1994, 1995, the nine-month fiscal period ended September 30, 1996, and the nine-month period ended June 30, 1997, Sysco accounted for approximately 38%, 33%, 27% and 27%, respectively, and sales to Sam's Club accounted for approximately 12%, 23%, 20% and 21%, respectively, of the Company's revenues. The Company expects it will continue to rely on a limited number of major customers for a substantial portion of its revenues in the future. Management believes that a majority of the Company's fiscal 1998 revenues will be derived from combined sales to Sysco, Sam's Club and CPC. The Company has an exclusive supply contract with Sysco (the "Sysco Agreement") through June 2000, subject to renewal by Sysco for two additional three-year periods. The Company recently entered into a long-term manufacturing and distribution agreement with CPC (the "CPC Agreement") to supply it with a minimum of 175 million pounds of pasta annually for nine years. The Company does not have supply contracts with a substantial number of its customers, including Sam's Club. Accordingly, the Company is dependent upon its customers to sell the Company's products and to assist the Company in promoting market acceptance of, and creating demand for, the Company's products. An adverse change in, or termination or expiration without renewal of, the Company's relationships with or the financial viability of one or more of its major customers could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, certain exclusivity provisions of the Sysco Agreement and CPC Agreement prevent AIPC from producing and supplying competitors of Sysco and CPC with certain pasta products. Under the Sysco Agreement, the Company is restricted from supplying pasta products to foodservice businesses other than Sysco. Without CPC's consent, AIPC may not produce branded retail pasta for Borden, Hershey Foods Corporation ("Hershey") or Barilla Alimentare S.p.A. ("Barilla"), and is limited to the production of an aggregate of 12 million pounds of branded pasta products annually for other producers. See "Business -- Production and Supply Agreements." MANAGEMENT OF GROWTH AND IMPLEMENTATION OF CPC BUSINESS The Company has experienced rapid growth and management expects significant additional growth in the future. Successful management of any such future growth will require the Company to continue to invest in and enhance its operational, financial and management information resources and systems, attract and retain management personnel to manage such resources and systems, accurately forecast sales demand and meet such demand, accurately forecast retail sales, control its overhead, and attract, train, motivate and manage its employees effectively. There can be no assurance that the Company will continue to grow, or that it will be effective in managing its future growth. Any failure to effectively manage growth could have a material adverse effect on the Company's business, financial condition and results of operations. During 1998, the Company will be required to produce substantially all of CPC's Mueller's brand pasta, which has averaged approximately 200 million pounds of pasta annually over the last five years. To meet its obligations under the CPC Agreement and provide for future growth, the Company must successfully complete its 1997-1998 capital expansion program to increase its overall milling, production and distribution capacity by approximately 100%. Implementation of the CPC Agreement may also adversely affect the Company's financial, operational and human resources. There can be no assurance that the Company's planned expansion of its production facilities will be completed in a timely and cost-effective manner or at all, or that such expanded facilities will be adequate to meet the CPC volume requirements and any future growth. Failure to complete the Company's planned capital expansion in a timely and cost-effective manner and implement the CPC Agreement could have a material adverse effect on the Company's business, financial condition and results of operations. 10 13 SUBSTANTIAL PLANNED INVESTMENTS IN MILLING AND PRODUCTION FACILITIES The Company has begun a major expansion of its durum wheat milling and pasta production and distribution facilities, budgeted to cost approximately $86 million during the 1997 and 1998 fiscal years, which is planned to increase AIPC's overall milling, production and distribution capacity by approximately 100%. There can be no assurance that the Company will be able to complete this expansion on schedule, within budget or at all, that the expanded facilities will result in the anticipated increase in production capacity or that future revenues from products produced at the expanded facilities will be sufficient to recover the Company's investment in the expansion. In addition, there can be no assurance that the Company will be able to calibrate its production capacity to future changes in demand for its products or that any future additions to, or expansions of, its facilities will be completed on schedule and within budget. Any significant delay or cost overrun in the construction or acquisition of new or expanded facilities could have a material adverse effect on the Company's business, financial condition and results of operations. RAW MATERIALS The principal raw material in the Company's products is durum wheat. Durum wheat is used almost exclusively in pasta production and is purchased in a highly-competitive, price-sensitive market. The supply and price of durum wheat is subject to market conditions and is influenced by numerous factors beyond the control of the Company, including general economic conditions, natural disasters and weather conditions, competition, and governmental programs and regulations. The supply and cost of durum wheat may also be adversely affected by insects, plant diseases and funguses, including the karnal bunt fungus which infected a portion of the durum wheat produced in the southwestern United States in 1996. The Company also relies on the supply of plastic, corrugated and other packaging materials. The costs of durum wheat and packaging materials have varied widely in recent years and future changes in such costs may cause the Company's results of operations and margins to fluctuate significantly. A large, rapid increase in the cost of raw materials could have a material adverse effect on the Company's operating profit and margins unless and until the increased cost can be passed along to customers. Historically, changes in prices of the Company's pasta products have lagged changes in the Company's materials costs. Competitive pressures may also limit the ability of the Company to raise prices in response to increased raw material costs in the future. Accordingly, there can be no assurance as to whether, or the extent to which, the Company will be able to offset raw material cost increases with increased product prices in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Raw Materials and Supplies." COMPETITION The Company operates in a highly-competitive environment against numerous well-established national, regional and foreign companies, and many smaller companies in the procurement of raw materials, the development of new pasta products and product lines, the improvement and expansion of previously introduced pasta products and product lines and the production, marketing and distribution of pasta products. Several of these companies have longer operating histories, broader product lines, significantly greater brand recognition and greater production capacity and financial and other resources than the Company. The Company's direct competitors include large multi-national companies such as food industry leader Hershey with brands such as San Giorgio(R) and Ronzoni(R), and Borden with brands such as Prince(R) and Creamette(R), regional U.S. producers of retail and institutional pasta such as Dakota Growers Pasta Company ("Dakota Growers"), a farmer-owned cooperative in North Dakota, Philadelphia Macaroni Co. Inc. ("Philadelphia Macaroni") and A. Zerega's Sons, Inc. ("Zerega's"), each an independent producer, and foreign companies such as Italian pasta producers De Cecco ("De Cecco") and Barilla. The Company's competitive environment depends to a significant extent on the aggregate industry capacity relative to aggregate demand for pasta products. Several domestic pasta producers have recently completed production facility additions or announced their intention to increase domestic production capacity. In addition to AIPC's planned capital expansion, management believes that these capacity additions represent more than 200 million pounds in aggregate. Dakota Growers recently increased the capacity of its durum wheat mill and has announced plans to complete a pasta production capacity expansion in excess of 100 11 14 million pounds by the end of 1997. Hershey recently added approximately 50 million pounds of pasta capacity to its facility in Winchester, Virginia. Two major pasta producers have also recently announced planned reductions in pasta production capacity. Borden announced that it will close or sell five of its ten North American pasta plants by the end of 1997, and CPC intends to eliminate its capacity of approximately 180 million pounds by the end of 1997. Increases in industry capacity levels above demand for pasta products could have a material adverse effect on the Company's business, financial condition and results of operations. Several foreign producers, based principally in Italy and Turkey, have aggressively targeted the U.S. pasta market in recent years. In 1996, a U.S. Department of Commerce investigation revealed that several Italian and Turkish producers were engaging in unfair trade practices by selling pasta at less than fair value in the U.S. markets and benefitting from subsidies from their respective governments. Effective July 1996, the U.S. International Trade Commission ("ITC"), imposed anti-dumping and countervailing duties on Italian and Turkish imports. While such duties may enable the Company and its domestic competitors to compete more favorably against Italian and Turkish producers in the U.S. pasta market, there can be no assurance that the duties will be maintained for any length of time, or that these or other foreign producers will not sell competing products in the United States at prices less than those of the Company. Such practices, if continued or increased, could have a material adverse effect on the Company's business, financial condition and results of operations. Bulk imported pasta is not subject to such anti-dumping and countervailing duties. A leading branded Italian producer, Barilla, opened a repackaging and distribution facility in Syracuse, New York in 1996 for bulk imported pasta. See "Business -- Pasta Industry -- Pasta Production Capacity" and "--Competition." RELIANCE ON PASTA; PRODUCT LINE CONCENTRATION Since commencing operations in 1988, the Company has focused exclusively on the dry pasta industry. For the foreseeable future, AIPC expects to continue to receive substantially all of its revenues from the sale of pasta and pasta-related products. Because of this product concentration, any decline in the demand or pricing for dry pasta, any shift in consumer preferences away from dry pasta, or any other factor that adversely affects the pasta market, could have a more significant adverse effect on the Company's business, financial condition and results of operations than on pasta producers which also produce other products. In addition, the Company's pasta production equipment is highly specialized and is not adaptable to the production of non-pasta food products. RELIANCE ON KEY PERSONNEL The Company's operations and prospects depend in large part on the performance of its senior management team, including Horst W. Schroeder, Chairman of the Board, Timothy S. Webster, President and Chief Executive Officer, David E. Watson, Executive Vice President and Chief Financial Officer, Norman F. Abreo, Executive Vice President of Operations and David B. Potter, Senior Vice President of Procurement. No assurance can be given that the Company would be able to find qualified replacements for any of these individuals if their services were no longer available. The loss of the services of one or more members of the Company's senior management team could have a material adverse effect on the Company's business, financial condition and results of operations. Messrs. Schroeder and Webster currently have employment agreements with the Company, which agreements will be amended or replaced prior to consummation of the Offering. The Company intends to enter into employment agreements with Messrs. Watson and Abreo in August 1997. See "Management." TRANSPORTATION Durum wheat is shipped to the Company's production facility in Missouri directly from North Dakota, Montana and Canada under a long-term rail contract. The Company also has a rail contract to ship semolina, milled and processed at the Missouri facility, to the South Carolina facility. An extended interruption in the Company's ability to ship durum wheat by railroad to the Missouri plant, or semolina to the Company's South Carolina facility, could have a material adverse affect on the Company's business, financial condition and results of operations. The Company experienced a significant interruption in railroad shipments in 1994 due to a railroad strike. While the Company would attempt to transport such materials by alternative means if it were 12 15 to experience another interruption due to strike, natural disasters or otherwise, there can be no assurance that the Company would be able to do so or be successful in doing so in a timely and cost-effective manner. See "Business - -- Milling and Production Processes" and "-- Raw Materials and Supplies." PRODUCTION AND INVENTORY MANAGEMENT Most of the Company's customers use, to some extent, inventory management systems which track sales of particular products and rely on reorders being rapidly filled by suppliers to meet consumer demand rather than on large inventories being maintained by retailers. Although these systems reduce a retailer's investment in inventory, they increase pressure on suppliers like the Company to fill orders promptly and thereby shift a portion of the retailer's inventory management cost to the supplier. The Company's production of excess inventory to meet anticipated retailer demand could result in markdowns and increased inventory carrying costs for the Company. In addition, if the Company underestimates the demand for its products, it may be unable to provide adequate supplies of pasta products to retailers in a timely fashion, and may consequently lose sales. POTENTIAL VOLATILITY OF FUTURE QUARTERLY OPERATING RESULTS The Company's results of operations may fluctuate on a quarterly basis as a result of a number of factors, including total sales volumes, the timing and scope of new customer volumes, the timing and amounts of price adjustments due to durum wheat and other cost changes, the cost of raw materials, including durum wheat, plant expansion costs and interest expenses. In addition, fluctuations in quarterly results could affect the market price of the Class A Common Stock in a manner unrelated to the longer term operating performance of the Company. RISK OF PRODUCT LIABILITY Although the Company has never been involved in a product liability lawsuit, the sale of food products for human consumption involves the risk of injury to consumers as a result of tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, aflatoxin and other agents, or residues introduced during the growing, storage, handling or transportation phases. While the Company is subject to U.S. Food & Drug Administration inspection and regulations and believes its facilities comply in all material respects with all applicable laws and regulations, there can be no assurance that consumption of the Company's products will not cause a health-related illness in the future or that the Company will not be subject to claims or lawsuits relating to such matters. The Company maintains product liability insurance in an amount which the Company believes to be adequate. However, there can be no assurance that the Company will not incur claims or liabilities for which it is not insured or that exceed the amount of its insurance coverage. SUBSTANTIAL INFLUENCE OF CURRENT PRINCIPAL STOCKHOLDER Upon consummation of the Offering, the Morgan Stanley Stockholders will own approximately % of the outstanding Common Stock (approximately % of the outstanding Common Stock if the U.S. Underwriters' over-allotment option is exercised in full). The Morgan Stanley Stockholders have informed the Company that they intend to convert, from time to time, such number of their shares of Class B Common Stock into shares of Class A Common Stock so that, following any such conversion, the Morgan Stanley Stockholders and certain related persons will own, in the aggregate, 49% of the outstanding Class A Common Stock (which is voting common stock) of the Company. The Morgan Stanley Stockholders are affiliates of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"), an affiliate of Morgan Stanley & Co. Incorporated, a representative of the U.S. Underwriters, and Morgan Stanley & Co. International Limited, a representative of the International Underwriters. Upon consummation of the Offering, two of seven directors of the Company will be employees of a wholly-owned subsidiary of MSDWD. Pursuant to the terms of the Stockholders Agreement, to be amended and restated prior to the consummation of the Offering, among the Morgan Stanley Stockholders, the Company and certain other stockholders of the Company, the Morgan Stanley Stockholders will have the right to designate three members of the Board of Directors so long as the 13 16 total number of shares of Common Stock of the Company owned by the Morgan Stanley Stockholders constitutes at least 35% of the outstanding Common Stock and there are seven directors on the Board. In addition, the Morgan Stanley Stockholders will have the right to designate two nominees for election to the Board of Directors for so long as their ownership interest falls below 35% but equals or exceeds 25% of the outstanding Common Stock and one nominee for election to the Board for so long as their ownership interest falls below 25% but equals or exceeds 5% of the outstanding Common Stock. The number of directors designated by the Morgan Stanley Stockholders will increase proportionately if the size of the Board of Directors is increased in the future. In addition, the amended Stockholders Agreement will state that so long as the Morgan Stanley Stockholders own at least 25% of the outstanding shares of Common Stock, certain significant corporate actions are subject to the approval of the Board of Directors and the Morgan Stanley Stockholders. As a result of their ownership interest in the Company and their rights pursuant to the Stockholders Agreement, the Morgan Stanley Stockholders will continue to have a substantial influence over the affairs of the Company following the consummation of the Offering. See "Principal and Selling Stockholders" and "Certain Relationships and Related Transactions -- Stockholders Agreement." FINANCIAL LEVERAGE; SENSITIVITY TO INTEREST RATE FLUCTUATIONS; COVENANT RESTRICTIONS The Company will use the net proceeds to the Company from the Offering to reduce its outstanding bank indebtedness as of June 30, 1997 from approximately $86 million to $ million upon application of the net proceeds of the Offering, after which such debt will represent approximately % of the Company's total capitalization. However, the Company intends to substantially increase such indebtedness in the future to finance its capital expenditure plan. The degree to which the Company is financially leveraged following such borrowings and the terms of the Company's indebtedness could have important consequences to stockholders, including: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, and general corporate purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations may have to be dedicated to the payment of the principal of and interest on its indebtedness; (iii) the terms of such indebtedness may restrict the Company's ability to pay dividends; and (iv) the Company may be more highly leveraged than many of its competitors, which may place the Company at a competitive disadvantage. As of June 30, 1997, the outstanding indebtedness under the Company's $162.6 million credit facility (the "Credit Facility") was $85.9 million. See "Use of Proceeds." As of June 30, 1997, the Company's indebtedness had a weighted average interest rate of 9.3% and approximately 92%, or $85.9 million, of the Company's indebtedness bore interest at variable rates. Although the Company will use the net proceeds of the Offering to substantially reduce the amount of such variable-rate indebtedness, the Company may incur additional amounts of variable-rate indebtedness in the future. If this were to occur, and if interest rates were to significantly increase thereafter, the Company's operating results and its ability to satisfy its debt service obligations may be materially and adversely affected. Previously, the Company had relied on an interest rate cap to effectively limit the Company's exposure to variable rates with respect to a portion of the Company's debt. Under the Credit Facility, the Company is required to obtain an interest rate protection agreement by November 15, 1997. There can be no assurance the Company will be able to obtain such interest rate protection agreement on favorable terms. The limitations contained in the agreements relating to the Company's existing Credit Facility, together with the leveraged position of the Company, restrict the Company from paying dividends and could limit the ability of the Company to effect future debt or equity financings and may otherwise restrict corporate activities, including the ability to avoid defaults and to respond to competitive market conditions, to provide for capital expenditures beyond those permitted or to take advantage of business opportunities. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BY-LAW AND STATUTORY PROVISIONS Certain provisions of the Company's Charter and By-laws (the "By-laws") could delay or frustrate the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving the Company, even if such events could be beneficial, in the short term, to the interests of the stockholders. For example, the Charter and By-laws allow the Company to issue preferred stock with rights senior to those 14 17 of the Class A Common Stock without stockholder action, require the Board of Directors to be divided into three classes serving three-year staggered terms, require stockholder actions to be effected only at annual or special stockholder meetings (unless the action is effected by written consent of stockholders and the taking of such action by written consent has been approved in advance by the Board of Directors), require the affirmative vote of two-thirds of the stockholders entitled to vote to remove directors, require the affirmative vote of 80% of the stockholders entitled to vote to amend certain provisions of the Charter or to repeal or amend the Company's By-laws and impose various other procedural requirements on the taking of certain actions. The Company also is subject to provisions of the General Corporation Law of the State of Delaware, as amended (the "DGCL"), that prohibit a publicly-held Delaware corporation from engaging in a broad range of business combinations with a person who, together with affiliates and associates, owns 15% or more of the corporation's common stock (an "Interested Stockholder") for three years after the person became an Interested Stockholder, unless the business combination is approved in a prescribed manner. Those provisions could discourage or make more difficult a merger, tender offer or similar transaction, even if favorable to the Company's stockholders. Pursuant to the Charter, shares of preferred stock and Class A Common Stock may be issued in the future without further stockholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine. The issuance of preferred stock and Class A Common Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate transactions, and the substantial ownership position of the Morgan Stanley Stockholders, could have the effect of making it more difficult for a third party to acquire, or effectively preventing a third party from acquiring, a majority of the outstanding Common Stock of the Company. In addition, the amended Stockholders Agreement will grant the Morgan Stanley Stockholders the right, depending on their ownership percentage, to designate nominees to the Board and to have the right to approve certain significant corporate actions including, but not limited to, mergers, consolidations or other similar transactions. See "Description of Capital Stock -- Delaware Law and Certain Charter and By-Law Provisions." ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Class A Common Stock. Even if the Class A Common Stock is listed on the New York Stock Exchange, there can be no assurance that an active trading market for the Class A Common Stock will develop or be sustained after the Offering, or that purchasers of Class A Common Stock will be able to resell their Class A Common Stock at prices equal to or greater than the initial public offering price. The initial public offering price was determined by negotiations between the Company and the U.S. Representatives based on the factors described in "Underwriters." The trading price of the Class A Common Stock could be subject to wide fluctuations in response to announcements of increases in the cost of raw materials, new products introduced by the Company or its competitors, variations in the Company's quarterly results of operations, or changes in financial estimates by securities analysts and other events or factors. The stock market has experienced extreme price and volume fluctuations in recent years. Stock market volatility unrelated to the operating performance of the Company may adversely affect the market price of the Class A Common Stock. DILUTION OF VOTING POWER UPON CONVERSION OF CLASS B COMMON STOCK INTO CLASS A COMMON STOCK After giving effect to the Offering and the Morgan Stanley Stockholders' intended conversion of shares of Class B Common Stock into Class A Common Stock such that, following such conversion, the Morgan Stanley Stockholders will own, in the aggregate, 49% of the outstanding voting Class A Common Stock of the Company, there will be shares of Class B Common Stock outstanding, representing, in the aggregate, approximately % of the total outstanding Common Stock ( shares of Class B Common Stock, representing, in the aggregate, approximately % of the total outstanding Common Stock if the U.S. Underwriters' over-allotment option is exercised in full). Conversion of shares of Class B Common Stock into shares of Class A Common Stock would result in a decrease in the voting power of the investors in the Class A Common Stock offered hereby. Upon any disposition by the Morgan Stanley Stockholders of any of their Class B Common Stock, such shares of Class B Common Stock will be automatically converted into shares of 15 18 Class A Common Stock. According to the terms of the Charter, the Morgan Stanley Stockholders and certain related persons may not, in the aggregate, own more than 49% of the outstanding shares of Class A Common Stock. See "Principal and Selling Stockholders" and "Description of Capital Stock." SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS Upon consummation of the Offering (based on shares outstanding at , 1997), the Company will have outstanding an aggregate of shares of Common Stock, assuming no exercise of the U.S. Underwriters' over-allotment option and no exercise of outstanding options. Of these shares, all of the shares sold in the Offering will be freely tradeable without restriction or further registration under the Securities Act, unless such shares are purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act ("Affiliates"). The remaining shares of Common Stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144, 144(k) or 701 promulgated under the Securities Act. As a result of the contractual restrictions described below and the provisions of Rules 144, 144(k) and 701, the Restricted Shares will be available for sale in the public market as follows: (i) shares will be eligible for immediate sale on the date of this Prospectus; and (ii) shares will be eligible for sale upon expiration of the lock-up agreements at least 180 days after the date of this Prospectus. All officers, directors and option holders and substantially all stockholders of the Company have agreed not to sell or otherwise transfer any shares of Common Stock or any other securities of the Company for a period of at least 180 days after the date of this Prospectus. Sales, or the possibility of sales, of Common Stock by the Company's existing stockholders, whether in connection with the exercise of registration rights or otherwise, could adversely affect the market price of the Company's Class A Common Stock. The Stockholders Agreement will be amended to provide that the Company will grant the stockholders who are parties to such agreement, including the Morgan Stanley Stockholders, certain "demand" and "piggyback" registration rights with respect to the Common Stock owned by such stockholders. See "Certain Relationships and Related Transactions -- Stockholders Agreement" and "Shares Eligible for Future Sale." ABSENCE OF DIVIDENDS The Company has never declared or paid cash dividends on its Common Stock and currently intends to retain all available funds for use in the operation and expansion of its business. The Company does not anticipate that any cash dividends on the Common Stock will be declared or paid in the foreseeable future. See "Dividend Policy." SUBSTANTIAL AND IMMEDIATE DILUTION Investors in the Offering will incur immediate dilution of $ per share in the pro forma net tangible book value per share of Class A Common Stock (based upon an assumed initial public offering price of $ per share) as of June 30, 1997. See "Dilution." USE OF PROCEEDS The net proceeds to be received by the Company from the sale of shares of Class A Common Stock in the Offering are estimated to be approximately $ million (approximately $ million if the U.S. Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of $ per share. The Company will use approximately $ million of the net proceeds from the Offering to repay bank indebtedness (with stated maturities from 2000 through 2004 and bearing interest at a weighted-average interest rate of 9.3% per annum as of June 30, 1997) incurred under the Company's Credit Facility and the balance will be used to fund the expansion of the Company's facilities and for general corporate purposes. The Company will not receive any of the proceeds from the sale of Class A Common Stock by the Selling Stockholder. See "Underwriters." 16 19 DIVIDEND POLICY The Company has not declared or paid any dividends on its Common Stock to date and does not anticipate paying any such dividends in the foreseeable future. After consummation of the Offering, the Company intends to retain earnings for the foreseeable future to provide funds for the operation and expansion of its business and for the repayment of indebtedness. The borrowing agreements relating to the Company's Credit Facility contain certain provisions which effectively prohibit the payment of dividends. Future borrowing agreements of the Company may also contain limitations on the payment of dividends. Any determination to pay dividends in the future will be at the discretion of the Company's Board of Directors and will depend upon the Company's financial condition, capital requirements, results of operations and other factors, including any contractual or statutory restrictions on the Company's ability to pay dividends. 17 20 CAPITALIZATION The following table sets forth information regarding the short-term debt and capitalization of the Company on a pro forma basis to give effect to the Recapitalization as if it had occurred as of June 30, 1997 and on a pro forma as adjusted basis which reflects (i) the issuance and sale of shares of Class A Common Stock offered hereby by the Company at an assumed initial public offering price of $ per share and the application of the estimated net proceeds therefrom and (ii) the Morgan Stanley Stockholders' intended conversion of shares of Class B Common Stock into Class A Common Stock following the consummation of the Offering. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Capital Stock -- General." The following table should be read in conjunction with the Financial Statements, including the Notes thereto, appearing elsewhere in this Prospectus.
AS OF JUNE 30, 1997 ----------------------- PRO FORMA PRO FORMA AS ADJUSTED --------- ----------- (IN THOUSANDS) Long-term debt and capital lease obligations, current portion................................................... $ 3,685 $ ======== ======== Long-term debt and capital lease obligations, less current portion: Long-term debt............................................ $ 83,063 $ Capital lease obligations................................. 6,437 -------- -------- Total long-term debt and capital lease obligations, less current portion.................................. 93,185 -------- -------- Stockholders' equity: Preferred stock, $.001 par value, shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted.............................. -- Class A Common Stock, $.001 par value, shares authorized, shares issued and outstanding pro forma and shares issued and outstanding pro forma as adjusted(1)................................... Class B Common Stock, $.001 par value, shares authorized, shares issued and outstanding pro forma and shares issued and outstanding pro forma as adjusted...................................... Additional paid-in capital................................ Accumulated deficit....................................... (13,412) -------- -------- Total stockholders' equity........................... -------- -------- Total capitalization........................................ $ $ ======== ========
- ------------------------- (1) Excludes (i) shares and shares, respectively, of Class A Common Stock reserved for issuance upon the exercise of outstanding stock options under the Company's 1992 Plan and 1993 Plan; and (ii) shares and shares, respectively, of Class A Common Stock available for future grants under the 1992 Plan and the 1993 Plan. See "Management -- Stock Option Plans." 18 21 DILUTION The pro forma net tangible book value of the Company at June 30, 1997 was $34.0 million, or $ per share of Common Stock. Pro forma net tangible book value per share is equal to the Company's total assets less total liabilities, divided by the pro forma total number of shares outstanding. The Company had a pro forma total of shares of Common Stock outstanding as of June 30, 1997, assuming the Recapitalization had occurred as of that date. After giving effect to the sale by the Company of shares of Class A Common Stock in the Offering at an assumed initial public offering price of $ per share and deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the pro forma as adjusted net tangible book value of the Company as of such date would have been approximately $ , or $ per share, based on shares of Common Stock to be outstanding after the Offering. This represents an immediate increase in net tangible book value of $ per share to the current holders of the Common Stock and an immediate dilution of $ per share to new investors purchasing shares of Common Stock in the Offering. The following table illustrates this per share dilution: Assumed initial public offering price...................... $ ------- Pro forma net tangible book value per share before the Offering................................................. ------- Increase per share attributable to new investors........... ------- Pro forma as adjusted net tangible book value per share after the Offering....................................... ------- Dilution per share to new investors(2)..................... $ =======
The following table summarizes as of June 30, 1997, on a pro forma basis after giving effect to the Offering, the differences in the total consideration paid and the average price per share paid by the existing stockholders with respect to the outstanding Common Stock and by the purchasers of the shares of Common Stock offered by the Company in the Offering (at an assumed initial public offering price of $ per share and before deducting underwriting discounts and commissions and estimated offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ---------------- --------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ------ ------- ------ ------- --------- Existing stockholders(1).................... $55,335,000 $ New investors(2)............................ ----------- ------- Total.................................. $ $ =========== =======
- ------------------------- (1) Includes shares of Class B Common Stock. Excludes (i) shares and shares, respectively, of Class A Common Stock reserved for issuance upon the exercise of outstanding stock options under the Company's 1992 Plan and 1993 Plan; and (ii) shares and shares, respectively, of Class A Common Stock available for future grants under the 1992 Plan and the 1993 Plan. See "Management -- Stock Option Plans." (2) Sales of Class A Common Stock by the Selling Stockholder in the Offering will reduce the number of shares of Common Stock held by existing stockholders to , or approximately % of the total shares of Common Stock outstanding after the Offering ( shares, or approximately % if the U.S. Underwriters' over-allotment option is exercised in full), and will increase the number of shares held by new investors to , or approximately % of the total shares of Common Stock outstanding after the Offering ( shares, or approximately % if the U.S. Underwriters' over-allotment option is exercised in full). See "Principal and Selling Stockholders." 19 22 SELECTED FINANCIAL AND OTHER DATA The selected statement of operations data for the years ended December 31, 1994 and 1995, the nine-month fiscal period ended September 30, 1996, and the nine-month period ended June 30, 1997 and the selected balance sheet data as of December 31, 1995, September 30, 1996 and June 30, 1997 are derived from, and are qualified by reference to, the Financial Statements of the Company audited by Ernst & Young LLP, independent auditors, appearing elsewhere in this Prospectus. The selected statement of operations data for the years ended December 31, 1992 and 1993 and the selected balance sheet data as of December 31, 1992, 1993 and 1994 have been derived from audited financial statements of the Company not included herein. The selected statement of operations data for the calendar year ended December 31, 1996 and the nine-month period ended June 30, 1996, and the balance sheet data as of December 31, 1996 and June 30, 1996 have been derived from the Company's unaudited internal financial statements, which in the opinion of management, have been prepared on the same basis as the audited financial statements and reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations and financial position of the Company. The statement of operations data of the Company for the calendar year ended December 31, 1996 and the nine-month period ended June 30, 1996 are included herein only for comparison purposes. The Company's results of operations for the nine-month period ended June 30, 1997 are not necessarily indicative of its results for the full fiscal year. The selected other data has been derived from the accounting records of the Company and have not been audited. The selected financial and other data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Financial Statements, including the Notes thereto, appearing elsewhere in this Prospectus.
NINE-MONTH NINE-MONTH CALENDAR FISCAL PERIOD PERIOD ENDED FISCAL YEAR ENDED DECEMBER 31, YEAR ENDED ENDED JUNE 30, -------------------------------------- DECEMBER 31, SEPTEMBER 30, ---------------------- 1992 1993 1994 1995 1996(1) 1996(1) 1996 1997(1) ---- ---- ---- ---- ------------ ------------- ---- ------- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES) STATEMENT OF OPERATIONS DATA: Revenues......................... $39,049 $47,872 $69,465 $ 92,903 $121,621 $ 92,074 $ 86,514 $ 93,616 Cost of goods sold............... 28,750 35,081 54,393 73,851 89,704 68,555 65,697 67,821 Plant expansion costs(2)......... -- 1,171 484 2,065 -- -- 425 -- ------- ------- ------- -------- -------- -------- -------- -------- Gross profit..................... 10,299 11,620 14,588 16,987 31,917 23,519 20,392 25,795 Selling and marketing expense.... 2,888 2,883 3,792 5,303 11,682 8,676 6,625 8,078 General and administrative expense........................ 2,077 2,049 1,951 2,930 3,498 2,805 2,741 2,855 ------- ------- ------- -------- -------- -------- -------- -------- Operating profit before product introduction costs............. 5,334 6,688 8,845 8,754 16,737 12,038 11,026 14,862 Product introduction costs(3).... -- -- -- -- 6,986 5,753 3,150 3,458 ------- ------- ------- -------- -------- -------- -------- -------- Operating profit................. 5,334 6,688 8,845 8,754 9,751 6,285 7,876 11,404 Interest expense, net............ 5,396 3,210 4,975 8,008 10,575 8,023 8,030 7,800 ------- ------- ------- -------- -------- -------- -------- -------- Income (loss) before income tax and extraordinary loss......... (62) 3,478 3,870 746 (824) (1,738) (154) 3,604 Income tax....................... -- (3,221) 1,484 270 (307) (656) (87) 1,375 Extraordinary loss, net of income tax(4)......................... 2,639 -- 204 -- 1,647 1,647 1,647 -- ------- ------- ------- -------- -------- -------- -------- -------- Net income (loss)................ $(2,701) $ 6,699 $ 2,182 $ 476 $ (2,164) $ (2,729) $ (1,714) $ 2,229 ======= ======= ======= ======== ======== ======== ======== ======== Pro forma net income (loss) per common share(5)................ Pro forma weighted average common shares outstanding(5).......... OTHER DATA: EBITDA(6)........................ $ 7,993 $ 9,495 $12,408 $ 13,836 $ 16,853 $ 12,369 $ 13,212 $ 19,465 EBITDA as a percent of revenues(6).................... 20.5% 19.8% 17.9% 14.9% 13.9% 13.4% 15.3% 20.8% Revenue per employee (end of period)................ $ 209 $ 244 $ 288 $ 361 $ 437 NM NM NM Working capital excluding current maturities of long-term debt (average for the period) as a percent of revenues............ 17.3% 14.2% 12.0% 4.6% 6.5% NM NM NM BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents........ $ 2,119 $ 2,149 $ 11 $ 18 $ 1,678 $ 1,818 $ 707 $ 2,612 Working capital.................. 2,900 3,077 4,830 6,632 (1,965) (1,601) 1,667 13,276 Total assets..................... 48,803 66,337 93,629 135,424 139,576 143,157 142,199 146,110 Long-term debt, less current maturities..................... 31,509 40,024 62,375 97,452 92,143 93,284 94,884 89,500 Stockholders' equity............. 9,994 16,973 19,401 20,067 18,004 17,438 17,622 41,625
(footnotes appear on following page) 20 23 (footnotes from previous page) - ------------------------- (1) The Company adopted a fiscal year ending on the last Friday of September, effective beginning with the nine-month fiscal period ended September 27, 1996 and for all subsequent fiscal periods. For purposes of this Prospectus, the 1996 fiscal year and 1997 interim period are shown as having ended on September 30 and June 30, respectively. (2) Plant expansion costs include incremental direct and indirect manufacturing and distribution costs which are incurred as a result of construction, commissioning and start-up of new capital assets. These costs are expensed as incurred but are unrelated to current production and, therefore, are reported as a separate line item in the statement of operations. (3) Product introduction costs include the incremental selling and marketing expenses, including amortization of product placement or "slotting" fees, related to the Company's launch of its Pasta LaBella flavored pasta products into the U.S. retail grocery market. (4) Represents losses due to early extinguishment of long-term debt, net of income tax. (5) Earnings per share is presented on a pro forma basis giving effect to the consummation of the Recapitalization in connection with the Offering. (6) EBITDA represents earnings before interest, income taxes, depreciation and amortization, thereby removing the effect of certain non-cash charges on income. Management believes that EBITDA is a meaningful measure of operating performance, cash generation and ability to service debt. However, EBITDA should not be considered as an alternative either to: (i) net earnings (determined in accordance with GAAP); (ii) operating cash flow (determined in accordance with GAAP); or (iii) liquidity. There can be no assurance that the Company's calculation of EBITDA is comparable to similarly-titled items reported by other companies. 21 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the Financial Statements of the Company and the Notes thereto included elsewhere in this Prospectus. The following discussion includes certain forward-looking statements regarding the Company's expected results of operations, cost savings and future liquidity. For a discussion of important factors that could cause actual results to differ materially from the forward-looking statements, see "Risk Factors." The Company changed its fiscal year end from December 31 to the last Friday in September. This change resulted in a nine-month fiscal year for 1996, and will result in a 53-week year for fiscal 1997, and a 52- or 53-week year for all subsequent fiscal years. The Company's first three fiscal quarters end on the Friday last preceding December 31, March 31, and June 30. For purposes of this Prospectus, the 1996 fiscal year is described as the nine-month fiscal period ended September 30, 1996, and the nine-month 1996 and 1997 interim periods are described as having ended June 30. The statement of operations data of the Company for the nine-month periods ended September 30, 1995 and June 30, 1996, and the calendar year ended December 31, 1996 are included herein only for comparison purposes. OVERVIEW AIPC is the third largest and one of the fastest-growing producers and marketers of pasta in North America. The Company commenced operations in 1988 with the North American introduction of new, highly-efficient durum wheat milling and pasta production technology. Management believes that the Company's singular focus on pasta, vertically-integrated facilities, continued technology leadership and development of a highly-skilled workforce enable AIPC to produce high-quality pasta at costs significantly below those of most of its competitors. Management believes that the combination of the Company's favorable cost structure, the higher average age of its competitors' North American pasta production equipment and the growing pasta consumption in North America creates significant opportunities for continued growth. The Company generates its revenues in two customer markets: Retail and Institutional. The Retail market revenues include the revenues from sales of the Company's pasta products to customers who resell the Company's pasta in retail channels. These revenues include sales to club stores and grocery retailers, encompass sales of the Company's private label and branded products, and will include sales to CPC. The Institutional market revenues include the revenues from product sales to Company customers who use the Company's pasta as an ingredient in food products or customers who resell the Company's pasta in the foodservice market such as Sysco. The Institutional market also includes revenues from opportunistic sales to government agencies and other customers which the Company pursues periodically when capacity is available ("Contract Sales") to increase production volumes and thereby lower average unit costs. Average sales prices in the Retail and Institutional markets differ depending on customer-specific packaging and raw material requirements, product manufacturing complexity and other service requirements. Generally, average retail sales prices are higher than institutional sales prices. Average retail and institutional prices vary due to changes in the relative share of customer revenues and item specific sales volumes (i.e., product sales mix). Revenues are reported net of cash discounts, pricing allowances and product returns. The Company seeks to develop strategic customer relationships with food industry leaders that have substantial pasta requirements. The Company has long-term supply agreements with Sysco and CPC and other arrangements with food industry leaders, such as Sam's Club, that provide for the "pass-through" of direct material cost changes as pricing adjustments. The pass-throughs are generally limited to actual changes in cost and, as a result, impact marginal profitability in periods of changing costs and prices. The pass-throughs are generally effective 30 to 90 days following such costs changes and thereby significantly reduce the long-term exposure of the Company's operating results to the volatility of raw material costs. Management estimates that approximately 60% of the Company's revenues in fiscal 1997 will be pursuant to long-term supply agreements and other customer arrangements which have provisions for the pass-through of changes in durum wheat costs. Management believes that this percentage will increase as the Company begins to generate revenue from CPC. 22 25 The Company's Pasta LaBella flavored pasta products are sold at prices which are significantly higher than the Company's non-flavored products as a result of higher product and distribution costs and its premium brand position. In the second quarter of calendar 1996, the Company began distribution of Pasta LaBella flavored pasta into the U.S. Retail grocery market. This initiative was supported by a comprehensive trade and consumer product introduction program, including the payment of product placement or "slotting" fees to retailers, and an on-going selling and marketing program required to support branded retail sales. The Company achieved distribution in approximately 40% of the U.S. Retail grocery market and ceased to incur additional product introduction costs in the first quarter of fiscal 1997. Product introduction costs totalled $5.8 million for the nine-month fiscal period ended September 30, 1996 and $3.5 million for the nine-month period ended June 30, 1997. Substantially all product introduction costs associated with the Pasta LaBella flavored pasta retail distribution initiative will be charged to product introduction costs by the end of fiscal 1997. The Company's cost of goods sold consist primarily of raw materials, packaging, manufacturing (including depreciation) and distribution costs. A significant portion of the Company's cost of goods sold is durum wheat. The Company purchases durum wheat on the open market and, consequently, is subject to fluctuations in cost. The Company manages its durum cost risk through long-term contracts and other arrangements with its customers and advance purchase contracts for durum wheat which are generally less than six months' duration. The price of durum wheat was volatile during the period between January 1, 1994 and June 30, 1997 and the published average monthly market price per bushel fluctuated from $5.18 to $7.49 over this period. The durum cost volatility and the timing and amount of sales price adjustments impacted profit and margins over the 1994-1997 periods. The Company's capital asset strategy is to achieve low-cost production through vertical integration and investment in the most current pasta-making assets and technologies. The manufacturing- and distribution-related capital assets which have been or will be acquired to support this strategy are depreciated over their respective economic lives. Because of the capital intensive nature of the Company's business and its current and future facilities expansion plans, management believes its depreciation expense for production and distribution assets may be higher than that of many of its competitors. Depreciation expense is a component of inventory cost and cost of goods sold. Plant expansion costs include incremental direct and indirect manufacturing and distribution costs which are incurred as a result of construction, commissioning and start-up of new capital assets. These costs are expensed as incurred but are unrelated to current production and, therefore, reported as a separate line item in the statement of operations. Selling and marketing expense incurred to support retail sales are higher than those for institutional sales, as the Company incurs external broker commissions, and promotional and other marketing expenses in addition to the costs incurred by its internal retail sales force. The Company is not responsible for selling and marketing expense related to the CPC Agreement. Consequently, the Company expects prospective selling and marketing expense as a percentage of revenues to decrease relative to historical levels as the Company begins to generate CPC revenues in 1998. At June 30, 1997, the Company had a net operating loss carryforward of approximately $26.6 million for federal income tax purposes. The net operating loss carryforward resulted principally from the Company's significant tax depreciation deductions related to its capital assets. Subject to certain limitations, the Company expects this net operating loss carryforward will be available to offset future taxable income. 23 26 RESULTS OF OPERATIONS The following table sets forth certain statement of operations data of the Company, expressed as a percentage of revenues, for each of the periods presented. This table should be read in conjunction with the Financial Statements and related Notes thereto appearing elsewhere in this Prospectus:
NINE-MONTH NINE-MONTH FISCAL YEAR ENDED CALENDAR FISCAL PERIOD PERIODS ENDED DECEMBER 31, YEAR ENDED ENDED JUNE 30, ----------------- DECEMBER 31, SEPTEMBER 30, ----------------- 1994 1995 1996 1996 1996 1997 ---- ---- ------------ ------------- ---- ---- Revenues: Retail........................... 44.6% 53.1% 59.6% 60.7% 57.5% 56.3% Institutional.................... 55.4 46.9 40.4 39.3 42.5 43.7 ----- ----- ----- ----- ----- ----- Total revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- ----- ----- Cost of goods sold................. 78.3 79.5 73.8 74.5 75.9 72.4 Gross profit before plant expansion costs............................ 21.7 20.5 26.2 25.5 24.1 27.6 Plant expansion costs.............. 0.7 2.2 -- -- 0.5 -- ----- ----- ----- ----- ----- ----- Gross profit....................... 21.0 18.3 26.2 25.5 23.6 27.6 Selling and marketing expense...... 5.5 5.7 9.6 9.4 7.7 8.6 General and administrative expense.......................... 2.8 3.2 2.9 3.0 3.2 3.0 ----- ----- ----- ----- ----- ----- Operating profit before product introduction costs............... 12.7 9.4 13.7 13.1 12.7 16.0 Product introduction costs......... -- -- 5.7 6.2 3.6 3.7 ----- ----- ----- ----- ----- ----- Operating profit................... 12.7 9.4 8.0 6.9 9.1 12.3 Interest expense, net.............. 7.2 8.6 8.7 8.7 9.3 8.3 Income tax......................... 2.1 0.3 (0.3) (0.7) (0.1) 1.5 Extraordinary loss, net of income tax.............................. 0.3 -- 1.4 1.8 1.9 -- ----- ----- ----- ----- ----- ----- Net income (loss).................. 3.1% 0.5% (1.8)% (2.9)% (2.0)% 2.5% ===== ===== ===== ===== ===== =====
NINE-MONTH PERIOD ENDED JUNE 30, 1997 COMPARED TO THE NINE-MONTH PERIOD ENDED JUNE 30, 1996 Revenues. Revenues increased $7.1 million, or 8.2%, to $93.6 million for the nine-month period ended June 30, 1997, from $86.5 million for the nine-month period ended June 30, 1996. The increase for the nine-month period ended June 30, 1997 was primarily due to higher unit volume which was partially offset by lower net revenues on Pasta LaBella flavored pasta retail sales and price reductions as a result of the pass-through of lower durum wheat costs. The increase was lower than historical periods as the Company planned for and achieved higher than historical capacity utilization levels which precluded more significant unit production and sales growth. The Company believes the scheduled 1998 increases in production capacities and the start of CPC sales will result in increased revenue growth in 1998. Revenues for the Retail market increased $3.0 million, or 6.0%, to $52.7 million for the nine-month period ended June 30, 1997, from $49.7 million for the nine-month period ended June 30, 1996. This increase was due to higher unit volume, primarily from the private label category. This revenue increase was partially offset by a lower average retail unit price primarily resulting from volume-based price incentives on Pasta LaBella flavored pasta. The lower Pasta LaBella flavored pasta unit price was mitigated by product sales mix improvements in the private label and club store customers. Revenues for the Institutional market increased $4.1 million, or 11.1%, to $40.9 million for the nine-month period ended June 30, 1997, from $36.8 million for the nine-month period ended June 30, 1996. This was primarily the result of volume gains in ingredient and foodservice markets and Contract Sales which were partially offset by price reductions as a result of decreases in durum wheat costs. 24 27 Gross Profit. Gross profit increased $5.4 million, or 26.5%, to $25.8 million for the nine-month period ended June 30, 1997, from $20.4 million for the nine-month period ended June 30, 1996. Gross profit as a percentage of revenues increased to 27.6% for the nine-month period ended June 30, 1997 from 23.6% for the nine-month period ended June 30, 1996. These increases were the result of (i) increases in unit volumes; (ii) lower durum wheat and packaging material costs; and (iii) product sales mix improvements. Selling and Marketing Expense. Selling and marketing expense increased $1.5 million, or 22.7%, to $8.1 million for the nine-month period ended June 30, 1997, from $6.6 million for the nine-month period ended June 30, 1996. Selling and marketing expense as a percentage of revenues increased to 8.6% for the nine-month period ended June 30, 1997, from 7.7% for the nine-month period ended June 30, 1996. These increases were due to selling and marketing expense incurred to support incremental retail Pasta LaBella flavored pasta volume and increases in private label revenue growth. Product Introduction Costs. The Company incurred $3.5 million of product introduction costs for the nine-month period ended June 30, 1997, as compared to $3.2 million for the nine-month period ended June 30, 1996. These costs were primarily related to amortization of product placement fees or "slotting," introductory consumer sampling, couponing, advertising and trade promotions. The increase was due to increased product placement fee amortization offset by lower introductory selling and marketing expense. General and Administrative Expense. General and administrative expense increased $0.2 million, or 7.4%, to $2.9 million for the nine-month period ended June 30, 1997, from $2.7 million for the nine-month period ended June 30, 1996, but decreased as a percentage of revenues from 3.2% to 3.0%. The increase in general and administrative expense was primarily due to higher MIS expenses and communication costs needed to support sales growth. Operating Profit. Operating profit increased $3.5 million, or 44.3%, to $11.4 million for the nine-month period ended June 30, 1997, from $7.9 million for the nine-month period ended June 30, 1996. Excluding product introduction costs, operating profit increased $3.9 million, or 35.5%, to $14.9 million for the nine-month period ended June 30, 1997, from $11.0 million for the nine-month period ended June 30, 1996, and increased as a percentage of revenues to 16.0% for the nine-month period ended June 30, 1997, from 12.7% for the nine-month period ended June 30, 1996. Interest Expense. Interest expense decreased $0.2 million, or 2.5%, to $7.8 million for the nine-month period ended June 30, 1997, from $8.0 million for the nine-month period ended June 30, 1996. The decrease was primarily the result of reduced borrowings under the Company's term and revolving credit facilities resulting from the $22.3 million in proceeds realized from the April 1997 private equity financing (the "1997 Private Equity Financing"). See "-- Liquidity and Capital Resources" and "Certain Relationships and Related Transactions." Income Tax. Income tax increased $1.5 million for the nine-month period ended June 30, 1997 to $1.4 million, from $(0.1) for the nine-month period ended June 30, 1996, and reflects an effective income tax rate of approximately 38%. Extraordinary Item. During the nine-month period ended June 30, 1996, the Company incurred a $1.6 million (net of tax) extraordinary loss due to the write-off of deferred debt issuance costs in conjunction with a partial extinguishment and restructuring of the Company's principal bank credit agreement. There was no such item for the nine-month period ended June 30, 1997. Net Income. Net income increased $3.9 million to $2.2 million for the nine-month period ended June 30, 1997, from $(1.7) million for the nine-month period ended June 30, 1996. NINE-MONTH FISCAL PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995 Revenues. Revenues increased $28.3 million, or 44.4%, to $92.1 million for the nine-month fiscal period ended September 30, 1996, from $63.8 million for the nine-month period ended September 30, 1995. This increase was primarily due to higher unit volume, favorable changes in product sales mix and higher average prices resulting from the introduction of the Company's new, higher-priced Pasta LaBella flavored pasta. 25 28 Revenues for the Retail market increased $23.1 million, or 70.4%, to $55.9 million for the nine-month fiscal period ended September 30, 1996, from $32.8 million for the nine-month period ended September 30, 1995. This increase was due to (i) higher sales volume, with the largest increases coming from private label and club stores customers; (ii) higher average unit prices due to the introduction of the Company's new, higher-priced Pasta LaBella flavored pasta into the U.S. retail grocery market; (iii) improved product sales mix in the club store category; and (iv) the pass-through of higher durum wheat costs. Revenues for the Institutional market increased $5.2 million, or 16.8%, to $36.2 million for the nine-month fiscal period ended September 30, 1996, from $31.0 million for the nine-month period ended September 30, 1995. The volume gains in ingredient and foodservice categories were partially offset by lower Contract Sales volumes as available production capacity was utilized by retail sales growth. The average 1996 institutional unit price also increased due to the pass-through of higher durum wheat costs. Gross Profit. Gross profit increased $12.9 million, or 121.7%, to $23.5 million for the nine-month fiscal period ended September 30, 1996, from $10.6 million for the nine-month period ended September 30, 1995. Gross profit as a percentage of revenues increased to 25.5% for the nine-month fiscal period ended September 30, 1996, from 16.6% for the nine-month period ended September 30, 1995. These increases were primarily the result of (i) higher sales volumes; (ii) higher average unit prices, primarily as a result of Pasta LaBella flavored pasta sales; (iii) the absence of plant expansion costs; (iv) lower per unit warehousing and distribution costs resulting from outsourcing logistics functions through a new strategic alliance with Lanter Company; and (v) improved plant efficiencies and capacity utilization, including the impact of the new South Carolina production and distribution facilities. Selling and Marketing Expense. Selling and marketing expense increased $5.0 million, or 135.1%, to $8.7 million for the nine-month fiscal period ended September 30, 1996, from $3.7 million for the nine-month period ended September 30, 1995. Selling and marketing expense as a percentage of revenues increased to 9.4% for the nine-month fiscal period ended September 30, 1996 from 5.7% for the nine-month period ended September 30, 1995. These increases in selling and marketing expense were primarily due to Pasta LaBella flavored pasta sales and increases in club store and private label revenues. Product Introduction Costs. The Company incurred $5.8 million of product introduction costs during the nine-month fiscal period ended September 30, 1996 related to the retail introduction of the Company's Pasta LaBella flavored pasta products. These costs included amortization of product placement fees or "slotting," introductory consumer sampling, couponing, advertising and trade promotions. There were no comparable 1995 expenditures. General and Administrative Expense. General and administrative expense increased $0.8 million, or 40.0%, to $2.8 million for the nine-month fiscal period ended September 30, 1996, from $2.0 million for the nine-month period ended September 30, 1995, but decreased as a percentage of revenues from 3.2% for the nine-month period ended September 30, 1995 to 3.0% for the nine-month fiscal period ended September 30, 1996. The increase in general and administrative expense was primarily due to increases in MIS expenses and communication costs incurred to support sales growth and the commencement of operations in South Carolina. Operating Profit. Operating profit increased $1.4 million, or 28.6% to $6.3 million for the nine-month fiscal period ended September 30, 1996 from $4.9 million for the nine-month period ended September 30, 1995. Excluding product introduction costs, operating profit increased to $12.0 million, or 144.9%, from $4.9 million and increased as a percentage of revenue to 13.1% for the nine-month fiscal period ended September 30, 1996 from 7.7% for the nine-month period ended September 30, 1995. Interest Expense. Interest expense increased $2.7 million, or 50.9%, to $8.0 million for the nine-month fiscal period ended September 30, 1996 from $5.3 million for the nine-month period ended September 30, 1995, due to higher borrowing levels to finance the Company's South Carolina and Missouri capital assets expansion and increases in working capital. 26 29 Income Tax. Income tax decreased to $(0.7) million for the nine-month fiscal period ended September 30, 1996, from $(0.1) million for the nine-month period ended September 30, 1995 and reflect an effective income tax rate of approximately 38% in both periods. Extraordinary Item. During the nine-month fiscal period ended September 30, 1996, the Company incurred a $1.6 million (net of tax) extraordinary loss due to the write-off of deferred debt issuance costs in conjunction with a partial extinguishment and restructuring of the Company's principal bank credit agreement. There was no such item for the nine-month period ended September 30, 1995. Net Income. Net income decreased $2.5 million to $(2.7) million for the nine-month fiscal period ended September 30, 1996, from $(0.2) million for the nine-month period ended September 30, 1995. CALENDAR YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE FISCAL YEAR ENDED DECEMBER 31, 1995 The calendar year ended December 31, 1996 does not conform to the Company's fiscal year and is discussed below only for purposes of comparison with the Company's fiscal year ended December 31, 1995. Revenues. Revenues increased $28.7 million, or 30.9%, to $121.6 million for the calendar year ended December 31, 1996, from $92.9 million for the fiscal year ended December 31, 1995. This increase was due to higher unit volume, higher average unit price from the mid-1996 introduction of the Company's new higher-priced Pasta LaBella flavored pasta into the U.S. Retail grocery market and improvements in product sales mix. Revenues for the Retail market increased $23.1 million, or 46.9%, to $72.4 million for the calendar year ended December 31, 1996, from $49.3 million for the fiscal year ended December 31, 1995. This increase was due to (i) higher average unit prices associated with the introduction of the Company's new, higher-priced Pasta LaBella flavored pasta into the U.S. retail grocery market in mid-1996; (ii) higher unit volume, with the largest increases coming from the private label and club store customers; (iii) improved product sales mix; and (iv) the pass-through of higher durum wheat costs. Revenues for the Institutional market increased $5.6 million, or 12.8% to $49.2 million for the calendar year ended December 31, 1996 from $43.6 million for the fiscal year ended December 31, 1995. The ingredient and foodservice volume gains were partially offset by lower Contract Sales volumes as available capacities were utilized by retail unit growth. The average 1996 institutional unit price increased due to the pass-through of higher durum wheat costs. Gross Profit. Gross profit increased $14.9 million, or 87.6%, to $31.9 million for the calendar year ended December 31, 1996, from $17.0 million for the fiscal year ended December 31, 1995. Gross profit as a percentage of revenues increased to 26.2% for the calendar year ended December 31, 1996, from 18.3% for the fiscal year ended December 31, 1995. These increases were primarily the result of (i) higher unit volumes; (ii) higher average unit prices, primarily due to Pasta LaBella flavored pasta sales; (iii) lower durum wheat costs; (iv) the absence of plant expansion costs; and (v) lower per unit warehousing and distribution costs resulting from outsourcing logistics functions through a new strategic alliance with Lanter Company. Selling and Marketing Expense. Selling and marketing expense increased $6.4 million, or 120.8%, to $11.7 million for the calendar year ended December 31, 1996, from $5.3 million for the fiscal year ended December 31, 1995. Selling and marketing expense, excluding product introduction costs, grew as a percentage of revenue to 9.6% for the calendar year ended December 31, 1996, from 5.7% for the fiscal year ended December 31, 1995. The increase in selling and marketing expense was due primarily to larger retail revenues associated with Pasta LaBella flavored pasta and increases in club store and private label sales. Product Introduction Cost. The Company incurred $7.0 million of product introduction costs during the calendar year ended December 31, 1996 related to the retail introduction of the Company's Pasta LaBella flavored pasta products. These costs included amortization of fees paid for product placement or "slotting," introductory consumer sampling, couponing, advertising and trade promotions. There were no comparable 1995 expenditures. 27 30 General and Administrative Expense. General and administrative expense increased $0.6 million, or 20.7%, to $3.5 million for the calendar year ended December 31, 1996 from $2.9 million for the fiscal year ended December 31, 1995, but decreased as a percentage of revenues from 3.1% to 2.9% over the same period. The increase in general and administrative expense was primarily due to increases in MIS expenses and communication costs incurred to support sales growth and the operations in South Carolina. Operating Profit. Operating profit increased $1.0 million, or 11.4%, to $9.8 million for the calendar year ended December 31, 1996, from $8.8 million for fiscal year ended December 31, 1995 and decreased as a percentage of revenue to 8.1% for the calendar year ended December 31, 1996, from 9.5% for the fiscal year ended December 31, 1995. Excluding product introduction costs, operating profit increased by $8.0 million, or 90.9%, to $16.8 million for the calendar year ended December 31, 1996, from $8.8 million for the fiscal year ended December 31, 1995 and increased as a percentage of revenue to 13.8% for the calendar year ended December 31, 1996 from 9.5% for the fiscal year ended December 31, 1995. Interest Expense. Interest expense increased $2.6 million, or 32.5% to $10.6 million for the calendar year ended December 31, 1996 from $8.0 million for fiscal year ended December 31, 1995, due to higher debt levels resulting from the incremental borrowings required to finance the Company's South Carolina and Missouri capital asset expansion and increases in working capital. Income Tax. Income tax decreased to $(0.3) million for the calendar year ended 1996 from $0.3 million for the fiscal year ended 1995, and reflects an effective income tax rate of approximately 38% in both periods. Extraordinary Item. During calendar year ended December 31, 1996, the Company incurred a $1.6 million (net of tax) extraordinary loss due to the write-off of deferred debt issuance costs in conjunction with a partial extinguishment and restructuring of the Company's principal bank credit agreement. Net Income. Net income decreased $2.7 million to $(2.2) million for the calendar year ended December 31, 1996, from $0.5 million for the fiscal year ended 1995. FISCAL YEAR ENDED DECEMBER 1995 COMPARED TO THE FISCAL YEAR ENDED DECEMBER 1994 Revenues. Revenues increased $23.4 million, or 33.7%, to $92.9 million for the fiscal year ended December 31, 1995, from $69.5 million for the fiscal year ended December 31, 1994. This increase was due primarily to higher unit volume and higher average unit prices resulting from a favorable product sales mix and price increases as a result of increases in durum wheat costs. Revenues for the Retail market increased $18.1 million, or 58.0%, to $49.3 million for the fiscal year ended December 31, 1995, from $31.2 million for the fiscal year ended December 31, 1994. The growth in Retail revenues was primarily due to significant volume increases from the mid-1994 commencement of sales to club stores and private label growth. The average 1995 retail unit price also increased due to price increases as a result of the pass-through of higher durum wheat costs and improved product sales mix. Revenues for the Institutional market increased $5.3 million, or 13.8%, to $43.6 million for the fiscal year ended December 31, 1995, from $38.3 million for the fiscal year ended December 31, 1994. The increased net revenue resulted primarily from (i) increased foodservice unit volume; (ii) an increase in Contract Sales volumes; (iii) price increases made as a result of the pass-through of higher durum wheat costs; and (iv) sales from the foodservice introduction of higher-priced Pasta LaBella flavored pasta in the second half of 1995. Gross Profit. Gross profit increased $2.4 million, or 16.4%, to $17.0 million for the fiscal year ended December 31, 1995, from $14.6 million for the fiscal year ended December 31, 1994. This increase resulted primarily from higher unit volumes. Gross profit as a percentage of revenues decreased to 18.3% for the fiscal year ended December 31, 1995 from 21.0% for the fiscal year ended December 31, 1994. Approximately two-thirds of the gross margin decrease was due to incremental plant expansion costs related to the 1995 construction, commissioning and start-up of the South Carolina production and distribution facilities and the Missouri distribution facility. The balance of the gross margin decrease was a result of (i) planned short-term increases in average unit manufacturing and logistics costs due to temporarily lower overall capacity and 28 31 higher production cost due to the opening of the South Carolina plant, and (ii) increases in average unit packaging material costs. Selling and Marketing Expense. Selling and marketing expense increased $1.5 million, or 39.5%, to $5.3 million for the fiscal year ended December 31, 1995, from $3.8 million for the fiscal year ended December 31, 1994. Selling and marketing expense as a percentage of revenues increased from 5.5% in fiscal 1994 to 5.7% in fiscal 1995, primarily as a result of retail revenue growth. General and Administrative Expense. General and administrative expense increased $0.9 million, or 45.0%, to $2.9 million for the fiscal year ended December 31, 1995, from $2.0 million for the fiscal year ended December 31, 1994. General and administrative expense as a percentage of revenues increased from 2.8% in fiscal 1994 to 3.2% in fiscal 1995, primarily due to increases in MIS, communications, travel and other general expenses related to the commencement of operations in South Carolina. Operating Profit. Operating profit was $8.8 million for the fiscal year ended December 31, 1995, unchanged from the prior fiscal year ended December 31, 1994. Excluding plant expansion costs in 1995 and 1994, operating profit increased $1.5 million, or 16.1%, to $10.8 million for the fiscal year ended December 31, 1995, from $9.3 million for fiscal year ended December 31, 1994, and decreased as a percentage of revenue to 11.6% for the fiscal year ended December 31, 1995 from 13.4% for the fiscal year ended December 31, 1994. Interest Expense. Interest expense increased $3.0 million, or 60.0%, to $8.0 million for the fiscal year ended December 31, 1995 from $5.0 million for the fiscal year ended December 31, 1994, primarily due to higher debt levels resulting from increased working capital and the financing of the Company's South Carolina and Missouri capital asset expansion. Income Tax. Income tax decreased $1.2 million to $0.3 million for the fiscal year ended December 31, 1995 from $1.5 million for the fiscal year ended December 31, 1994 and reflects an effective income tax rate of approximately 38% in both periods. Extraordinary Item. During the fiscal year ended December 31, 1994, the Company incurred a $0.2 million (net of tax) extraordinary loss due to the write off of deferred debt issuance costs in connection with a partial extinguishment and restructuring of the Company's principal bank credit agreement. There was no such item in 1995. Net Income. Net income decreased $1.7 million to $0.5 million for the fiscal year ended December 31, 1995 from $2.2 million for the fiscal year ended December 31, 1994. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $2.6 million and working capital totaled $13.3 million at June 30, 1997. At September 30, 1996, cash and cash equivalents totaled $1.8 million and working capital totaled $(1.6) million. The $14.9 million increase in working capital resulted primarily from the $22.3 million April 15, 1997 private equity financing (the "1997 Private Equity Financing") and improvements in the Company's operating results. The Company's net cash provided by operating activities totaled $14.1 million for the nine-month period ended June 30, 1997 compared to $(7.5) million for the nine-month fiscal period ended September 30, 1996. This increase of $21.6 million was primarily due to higher net income, reductions in net working capital investment and reduced product introduction costs. Net cash provided by operating activities was $5.7 million and $3.7 million for the fiscal years ending December 31, 1995 and 1994, respectively. The $2.0 million increase in net cash provided by operating activities in the fiscal year ending December 31, 1995 was primarily due to lower investment in net working capital. Cash flow used in investing activities principally relates to the Company's investments in manufacturing, distribution, milling and MIS assets. Capital expenditures were $11.5 million and $3.0 million for the nine-month periods ending June 30, 1997 and September 30, 1996, respectively, and were $38.8 million and $25.4 million for the fiscal years ended December 31, 1995 and 1994, respectively. The increase in spending for the nine-month period ending June 30, 1997 was a result of the Company's initial expenditures in the $86.0 million capital expansion program targeted for 1998 completion. This expansion is designed to meet the volume requirements of the CPC agreement and planned future growth opportunities. The increased spending 29 32 in 1994 and 1995 was primarily the result of the construction of the Company's South Carolina manufacturing and distribution facilities and the Missouri distribution center. Net cash provided by financing activities was $(1.8) million for the nine months ended June 30, 1997 compared to $12.3 million for the nine-month fiscal period ended September 30, 1996. The $14.1 million change is primarily a result of the $22.3 million in net proceeds from the 1997 Private Equity Financing offset by the $25.2 million repayment of short-term and long-term borrowings. Net cash provided by financing activities was $33.1 million and $19.6 million for the fiscal years ending December 31, 1995 and 1994, respectively, as a result of borrowings required to fund the Company's capital asset expansion programs and working capital. In April 1997, the Company entered into an amended and restated credit agreement with Bankers Trust Company, Morgan Stanley Senior Funding, Inc. and various banks named therein (the "Credit Agreement"). The Credit Agreement provides for (i) an $18.0 million term loan maturing on February 26, 2000; (ii) a $19.9 million term loan maturing on February 26, 2002; (iii) a $54.7 million term loan maturing on February 27, 2004; (iv) a $45.0 million term loan maturing on February 27, 2004 to finance a portion of the Company's 1997-1998 capital assets expansion; and (v) a $25.0 million revolving loan maturing on February 29, 2000. At June 30, 1997, $85.9 million was outstanding under the Credit Agreement, and the Company had $45.0 million available to borrow under the $45.0 million term credit facility and $24.5 million available to borrow under the $25.0 million revolving credit facility (subject to borrowing base limitations). As of July 31, 1997, $87.9 million was outstanding under the Credit Agreement. Interest on borrowings is based on the London Interbank Offer Rate (LIBOR), plus a credit margin of 300 to 375 basis points. At June 30, 1997, the three-month LIBOR rate was 5.8%, and the Company's aggregate, weighted average bank debt borrowing rate was 9.3%. The current Credit Agreement contains restrictive covenants that, among other things, limit the Company's ability to incur debt, sell assets, make capital expenditures and pay dividends. Management does not expect these limitations to have a material effect on the Company's business or results of operations. The Company is in compliance with all financial covenants contained in the Credit Agreement and believes it will continue to be in compliance during fiscal 1997. Management believes that the Company's Credit Agreement may be modified or replaced concurrently with or subsequent to the closing of the Offering. While no commitments for this modification have been made by the current or prospective lenders, management anticipates that the Company's creditworthiness and interest rate level of debt outstanding will be significantly improved after it receives the net proceeds from the Offering. The Company expects to incur an extraordinary charge related to the write-off of deferred debt issuance costs relating to the extinguishment and restructuring of the existing credit facility. The Company expects that future cash requirements will principally be for capital expenditures, repayments of indebtedness under the Credit Agreement and working capital requirements. As of June 30, 1997, the Company had commitments to purchase Italian pasta production equipment and expand the milling, production and distribution facilities totaling approximately $47.2 million and durum wheat purchase commitments totaling approximately $6.3 million. Management believes that net cash provided by operating activities, net cash provided by refinancing activities and the net proceeds of the Offering will be sufficient to meet the Company's expected capital and liquidity needs for the foreseeable future. EFFECT OF INFLATION AND INTEREST RATE FLUCTUATIONS Historically, inflation has not had a material effect on the Company, other than to increase its cost of borrowing. In general, the Company has been able to increase the majority of customer sales prices to recover significant increases in the prices of raw materials. However, changes in prices of the Company's pasta products and the pass-through of higher durum wheat costs to certain customers historically have lagged price increases in the Company's raw material costs. 30 33 BUSINESS OVERVIEW AIPC is the third largest and one of the fastest-growing producers and marketers of pasta in North America. The Company commenced operations in 1988 with the North American introduction of new, highly-efficient durum wheat milling and pasta production technology. Management believes that the Company's singular focus on pasta, vertically-integrated facilities, continued technology leadership and development of a highly-skilled workforce enable AIPC to produce high-quality pasta at costs significantly below those of most of its competitors. Management believes that the combination of the Company's favorable cost structure, the higher average age of its competitors' North American pasta production equipment and the growing pasta consumption in North America creates significant opportunities for continued growth. The Company's revenue and operating income before product introduction costs were $121.6 million and $16.7 million, respectively, for the calendar year ended December 31, 1996, and grew at CAGRs of 33% and 33%, respectively, over the five-year period ended December 31, 1996. During the nine-month period ended June 30, 1997, the Company had revenue of $93.6 million and an operating margin before product introduction costs of 15.9%. The Company has rapidly established a significant market presence in North America by developing strategic customer relationships with food industry leaders that have substantial pasta requirements. The Company has a long-term supply agreement with Sysco, the nation's largest marketer and distributor of foodservice products. In 1998, AIPC will become the exclusive producer of Mueller's, the largest pasta brand in the United States, pursuant to a recent long-term manufacturing and distribution agreement with CPC. CPC has announced its intention to close its current pasta production facility by December 1997. AIPC is also the primary supplier of pasta to Sam's Club, the largest club store chain in the United States, and supplies private label and branded pasta to six of the 10 largest grocery retailers in the United States, including Wal*Mart, A&P, Publix, Albertsons, American Stores and Winn-Dixie. In addition, AIPC has developed supply relationships with leading food processors, such as Pillsbury, General Mills and Kraft, which use the Company's pasta as an ingredient in branded food products. The Company produces more than 80 dry pasta shapes in two vertically-integrated production and distribution facilities, strategically located in Excelsior Springs, Missouri and Columbia, South Carolina. The construction of the Missouri plant in 1988 represented the first use in North America of a vertically-integrated, high-capacity pasta plant using Italian pasta production technology. Management believes that this plant continues to be among the most efficient and highly-automated pasta facilities in North America. The South Carolina plant, which commenced operations in 1995, produces only pasta shapes conducive to high-volume production and employs a highly-skilled, self-managed workforce. Management believes that the South Carolina plant is the most efficient pasta facility in North America in terms of productivity and conversion cost per pound. To meet the significant volume requirements of the CPC Agreement and support future growth, the Company commenced a capital expenditure program in 1997 to nearly double the Company's annual pasta production capacity and add a highly-automated durum wheat mill to its South Carolina plant, with completion scheduled for 1998. OPERATING STRATEGY The Company's operating strategy is to grow revenues and profitability by offering customers the highest quality pasta products at competitive prices with superior customer service. Key elements of the Company's operating strategy are: - Continue to Lead the Industry as the Lowest Cost Producer of High Quality Pasta. AIPC has successfully implemented production and capital investment strategies designed to achieve low-cost production of high-quality products. AIPC has distinguished itself from most major pasta producers by vertically integrating the durum wheat milling function with the production process, thereby allowing the Company to manage the grain procurement process and better control the consistency, quality and cost of its raw materials. The Company has invested in new pasta making technology, process controls and the development of a largely self-managed work force. Management believes that its facilities are among the 31 34 most efficient pasta production facilities in North America in terms of productivity and conversion cost per pound. AIPC actively manages plant capacity utilization to optimize its fixed asset base and profitability through Contract Sales to government agencies and other customers. The Company believes that its vertically-integrated processes and pasta production equipment produces pasta of superior color, texture, flavor and consistency. AIPC's logistics strategy enables the Company to realize significant distribution cost savings through its strategically-located distribution centers. The Company expects to realize additional operating efficiencies through the completion of the current expansion program at its South Carolina and Missouri facilities and ongoing improvement programs. See "-- Facilities and Expansion." - Expand Customer-Driven Strategy. The Company is committed to developing and maintaining strategic relationships with customers who (i) are food industry leaders requiring a significant volume of high-quality pasta; (ii) have committed marketing and sales resources to growing their pasta business; and (iii) pursue long-term supply arrangements. The Company has pursued this strategy since commencing operations in 1988, beginning with an agreement with Sysco. For almost a decade, the Company has been Sysco's primary pasta supplier. In addition, since 1994, the Company has been the primary pasta supplier to Sam's Club. AIPC currently supplies private-label and branded products to over 20 retail grocery customers, including many of the largest U.S. grocery retailers. AIPC also supplies pasta to leading food processors such as Pillsbury, General Mills and Kraft for use as a food ingredient. Starting in 1998, the Company will become the sole producer of Mueller's, the largest pasta brand in the United States, under the CPC Agreement. Management believes that these strategic relationships increase operating efficiencies, enhance AIPC's investment in new technology, create distribution synergies, and enable closer involvement in its customers' pasta businesses. - Provide Superior Customer Service. The Company develops and enhances customer relationships by providing superior service and technical support for its customers. The Company has invested heavily in the development of a broad range of customer service programs, including electronic data interchange (EDI) and efficient consumer response (ECR) programs which streamline the order, invoicing and inventory management functions. AIPC uses its customer response services and category management expertise, based in part on data supplied by A.C. Nielsen Co. ("Nielsen"), to assist customers in their supply management and merchandising decisions. AIPC's inventory management system is designed to optimize customer lead time, order fill rate and inventory turnover. To provide its customers with benefits in both transportation cost and delivery time, the Company has strategically located its distribution centers in Missouri, South Carolina and California. The Company provides marketing, technical and service support to its customers by assisting customers with supply and category management decisions, producing pasta to its customers' specifications and making operational recommendations to its customers using pasta as an ingredient in their food products. AIPC is the only pasta producer to sponsor an annual durum milling and pasta production technology forum, at which industry experts conduct a training and development program for the manufacturing and research and development personnel of food companies. GROWTH STRATEGY The Company continues to implement its growth strategy, which builds on the Company's operating strategy and industry trends. Key elements of the Company's growth strategy are: - Successfully Implement CPC Business Expansion. The Company was recently selected to be the exclusive producer of CPC's Mueller's brand pasta, the largest pasta brand in North America. Upon completion of AIPC's planned capacity expansion in 1998, management anticipates CPC's annual volume requirements will represent an approximately 60% increase over the Company's fiscal 1997 production run rate. Management believes that the Company's experience in servicing large pasta supply agreements and its current capacity expansion program will enable AIPC to meet the current CPC volume requirements and support potential future growth. - Pursue Strategic Alliances. The Company believes that commercial users and marketers of pasta will continue to require increasing quantities of pasta and that a greater portion of these requirements will 32 35 be outsourced to more efficient producers of high-quality pasta, such as AIPC. Management has identified additional strategic opportunities with commercial users and marketers of pasta which may result in incremental growth, new product development and cost savings opportunities in the future. - Secure Additional Private Label Customers. The Company intends to continue to grow its private label customer base and secure additional private label customers by continuing to offer quality products, competitive pricing, category management and superior customer service. Management believes that AIPC's prospects for growth in the private label market have been enhanced since Borden, historically the largest private label supplier in North America, publicly announced its intention to exit the private label pasta business in 1997. - Continue Product Innovation. In 1995, the Company introduced Pasta LaBella flavored pasta, a line of all natural, full-flavored pasta products utilizing patented flavoring technology and AIPC's proprietary production process. In addition to pursuing increased sales with institutional customers, the Company is exploring potential sales and marketing alliances to expand retail distribution of Pasta LaBella flavored pasta. AIPC also intends to continue assisting its customers with innovative products and packaging, and the development of additional value-added products intended to generate higher margins than traditional pasta products. PASTA INDUSTRY North American pasta consumption exceeded 5.0 billion pounds in 1995 and is projected to grow to approximately 5.8 billion pounds by 2002 based on industry and trade sources and the Company's own analysis. The pasta industry consists of two primary customer markets: (i) Retail, which includes grocery stores, club stores and mass merchants that sell branded and private label pasta to consumers; and (ii) Institutional, which includes both foodservice distributors that supply restaurants, hotels, schools and hospitals, as well as food processors that use pasta as a food ingredient. In 1996, the Retail market accounted for approximately 1.3 billion pounds, of which branded and private label pasta accounted for 1.0 billion and 0.3 billion pounds, respectively. Foodservice distributors, food processors and the U.S. government in the Institutional market accounted for the remainder of the volume, approximately 3.7 billion pounds, in 1996. The expected increase in North American consumption is primarily attributable to the widespread recognition that pasta is an inexpensive, convenient and nutritious food. The U.S. Department of Agriculture places pasta on the foundation level of its pyramid of recommended food groups. Products such as flavored pasta, prepared sauces, boxed pasta dinners, and both frozen and shelf-stable prepared pasta entrees support consumers' lifestyle demands for convenient at-home meals. Pasta continues to grow in popularity in restaurants as Americans continue to dine away from home more frequently. Customer Markets Retail. Hershey, Borden and CPC together represent a majority of the branded Retail market. Hershey, which primarily competes in the branded Retail market and whose retail brands include Ronzoni, San Giorgio, Skinner and American Beauty, is the industry leader and produced 24.5% of the total pounds sold in the branded Retail market for the 52 weeks ended June 30, 1997. Borden, which produced 21.5% of the total pounds sold in the Retail market for the 52 weeks ended June 30, 1997, has announced its intention to shift its strategy to focus on its branded pasta and sauce products, which include Creamette, Prince, Catelli, Merlino's and Anthony's, and to exit private label pasta production and sales. CPC participates in the Retail market with Mueller's, the oldest and largest pasta brand in the United States. AIPC directly participates in the branded Retail market by producing and distributing Pasta LaBella flavored pasta and will indirectly participate in such market by processing and distributing Mueller's brand pasta for CPC. During 1998, CPC will transfer substantially all of its Mueller's brand pasta production to AIPC. See "-- Production and Supply Agreements." Between the first quarter of 1994 and the second quarter of 1997, sales of private label pasta products increased from 18.6% to 21.5% of the total pounds of pasta sold in the Retail market. Management believes that sales of private label pasta products will continue to grow at a rate in excess of the overall Retail pasta 33 36 market. After Borden's departure from the private label market, AIPC will be one of the leading suppliers in the remaining fragmented market. Management believes that the private label category offers significant growth and profit opportunities to retailers and efficient producers. Retailers often prefer high-quality private label products to branded products because private label products typically enable retailers to generate higher margins and maintain greater control of in-store merchandising. While consumers traditionally have viewed private label products as having lower quality than branded products, management believes that new high-quality private label products have begun to change this perception. Management attributes some of this change in the private label market to the increasingly upscale image, improved packaging, higher product quality and competitive prices of private label products. Institutional. The Institutional market includes both foodservice distributors that supply restaurants, hotels, schools and hospitals, as well as food processors that use pasta as a food ingredient. Traditional foodservice customers include businesses and organizations, such as Sysco and JP Foodservice, Inc., that sell products to restaurants, healthcare facilities, schools, hotels and industrial caterers. Most foodservice distributors obtain their supply of pasta from third party producers such as AIPC. The foodservice market is highly-fragmented and is served by numerous regional and local food distributors, including both "traditional" foodservice customers and chain restaurant customers. Sysco, the nation's largest foodservice marketer and distributor of foodservice products and one of the nation's largest commercial purchasers of pasta products, serves approximately 10% of the foodservice customers in the United States and has more than double the revenues of the next largest foodservice distributor. The Institutional market also includes sales to food processors who use pasta as an ingredient in their food products such as frozen dinner entrees and side dishes, dry side dish mixes, canned soups and single-serve meals. Large food processors that use pasta as a food ingredient include Kraft, American Home Food Products Corporation, Stouffers Corp., Campbell Soup Company, ConAgra, Inc., Pillsbury and General Mills. The consistency and quality of the color, starch release, texture, cooking consistency, and gluten and protein content of pasta produced for food processors is crucial to their products' success. As a result, food processors have stringent specifications for these attributes. The size of the Institutional market is affected by the number of food processors that elect to produce pasta internally rather than outsourcing their production. Historically, most pasta used by food processors was manufactured internally for use in food processors' own products. Management believes, however, that an increasing number of food processors may discontinue the internal production of their own pasta and outsource their production to more efficient producers such as AIPC. Pasta Production Capacity Management believes that pasta producers have historically rationalized their existing production facilities. Within the past several years, however, there has been an increase in some pasta producers' capital reinvestment. Upon completion of the planned expansion, AIPC will have increased its production capacity to 620 million pounds since commencing operations in 1988. Several domestic pasta producers have recently completed production facility additions or announced their intention to increase domestic production capacity. In addition to AIPC's planned capital expansion, management believes that these capacity additions represent more than 200 million pounds in aggregate. Dakota Growers recently increased the capacity of its durum wheat mill and has announced plans to complete a pasta production capacity expansion in excess of 100 million pounds by the end of 1997. Hershey recently added approximately 50 million pounds of pasta capacity to its facility in Winchester, Virginia. Two major pasta producers have also recently announced planned reductions in pasta production capacity. Borden announced that it will close or sell five of its ten North American pasta plants by the end of 1997, and CPC intends to eliminate its capacity of approximately 180 million pounds by the end of 1997. AIPC and Dakota Growers are currently the only major pasta producers that own vertically-integrated milling and production facilities. Management estimates pasta imported from foreign producers currently represents 10% to 12% of the North American dry pasta market, and that of this amount, approximately 80% originates from producers in Italy and Turkey. The primary foreign suppliers of pasta with which the Company competes are Barilla and De Cecco. 34 37 Pricing pressures from Turkish and Italian pasta producers aggressively targeting the U.S. markets have adversely affected returns and earnings of some U.S. producers in recent years. In 1996, pasta imported from Italy accounted for approximately $140 million in sales, or around 8.0% of the U.S. pasta market. In 1996, a U.S. Department of Commerce investigation revealed that several Italian and Turkish producers were engaging in unfair trade practices by selling pasta at less than fair value in the U.S. markets and benefitting from subsidies from their respective governments. Effective July 1996, the U.S. International Trade Commission imposed anti-dumping duties ranging from 2.8% to 46.7% on Italian imports and from 56.8% to 63.3% on Turkish imports, as well as countervailing duties ranging from 1.2% to 11.2% on Italian imports and from 3.9% to 15.8% on Turkish imports. Although Turkish and Italian importers still participate in the major U.S. customer markets, management believes that these duties have significantly reduced the volume of low-priced pasta from Italy and Turkey. See "Risk Factors -- Competition." Raw Materials Pasta's primary ingredient is semolina, which is extracted from durum wheat through a milling process. Almost all domestic pasta producers purchase semolina from third party milling companies. Durum wheat is used exclusively for pasta. Each variety of durum wheat has its own unique set of protein, gluten content, moisture, density, color and other attributes which affect the quality and other characteristics of the semolina. The Company blends semolina from different wheat varieties as needed to meet customer specifications. Durum wheat used in United States pasta production generally originates from Canada, North Dakota, Montana, Arizona and California. Although durum wheat can be purchased directly from farmers or grower-owned cooperatives, most milling companies purchase durum wheat on a commodity exchange. AIPC and Dakota Growers are the only major producers of pasta in North America that have vertically integrated milling and production facilities. See "Raw Materials and Supplies." PRODUCTS AIPC's product line, comprising over 1,000 stock-keeping units ("SKUs"), includes long goods such as spaghetti, linguine, fettuccine, angel hair and lasagna, and short goods such as elbow macaroni, mostaccioli, rigatoni, rotini, ziti and egg noodles. In many instances, the Company produces pasta to its customers' specifications. AIPC makes over 80 different shapes and sizes of pasta products in over 160 package configurations, including bulk packages for institutional customers and small individually-wrapped packages for retail sale to individual consumers. AIPC contracts with third parties for the production of certain pasta shapes, such as retail lasagna and canneloni, which are specialized products, but which are necessary to offer customers a full range of pasta products. Purchased pasta represented less than 2% of AIPC's total unit volume in fiscal 1996. In fiscal 1995, AIPC introduced a product line of all natural, full-flavored pasta marketed under the Pasta LaBella brand. Pasta LaBella flavored pasta is principally marketed as a branded product to grocery retailers and to Sysco. AIPC's all-natural, full-flavored dry pasta is available in a variety of flavors including tomato basil, lemon pepper, pesto, roasted garlic and herb, roasted bell pepper/roasted garlic, and cracked black pepper. Management believes that AIPC's use of patented flavoring ingredients under an exclusive license and a proprietary manufacturing process allows the Company to provide superior product quality and flavor delivery compared to competitive flavored pasta products. Pasta LaBella flavored pasta was recognized as one of the top 10 new products in the United States in 1996 by Food Processing Magazine. QUALITY The Company believes that its state-of-the-art, Italian pasta production equipment is capable of producing the highest quality pasta. AIPC's products are produced to satisfy the specifications of the Company's customers as well as its own product specifications, which management believes are among the highest in the industry. The Company's pasta is distinguished by a rich, natural "wheaty" taste and a consistently smooth and firm ("al dente") texture with a minimum amount of white spots or dark specks. AIPC evaluates the quality of its products through: (i) internal laboratory evaluation of AIPC products 35 38 against competitive products on physical characteristics, including color, speck count, shape and consistency, and cooking performance, including starch release, protein content and bite; and (ii) competitive product comparisons that AIPC's customers perform on a regular basis. The Company submits its production facilities to semi-annual inspections by the American Institute of Baking ("AIB"), the leading United States baking, food processing and allied industries evaluation agency for sanitation and food safety. The Company consistently has achieved the AIB's highest "Superior" rating. The Company also implemented a comprehensive Hazard Analysis Critical Control Point ("HAACP") program five years ago to continuously monitor and improve the safety, quality and cost-effectiveness of the Company's facilities and products. The Company believes that having an AIB rating of "Superior" and meeting HAACP standards have helped the Company attract new business and strengthen existing customer relationships. PRODUCTION AND SUPPLY AGREEMENTS The Company has established itself as one of the largest producers of dry pasta in North America by establishing strategic production, supply and distribution arrangements with several food industry leaders, including CPC and Sysco. Under the CPC Agreement, CPC will close its current facilities dedicated to the production of Mueller's brand pasta and, beginning in 1998, AIPC will become the exclusive producer of Mueller's, with the exception of two specialty items which CPC currently purchases from another supplier. CPC is a global food company, and its Mueller's pasta line is the oldest and largest pasta brand in the United States with an annual sales volume averaging approximately 200 million pounds over the last five years. AIPC will be paid on a "cost plus" basis in an amount equal to total actual cost of production plus a guaranteed profit per pound of pasta produced. CPC has guaranteed minimum purchase volumes of 175 million pounds annually for nine years. AIPC may also benefit from additional cost savings resulting from improved productivity. The term of the contract is through December 31, 2006 with a three-year renewal term at the option of CPC. Without CPC's consent, AIPC may not produce branded retail pasta for Borden, Hershey or Barilla, and is limited to the production of an aggregate of 12 million pounds of branded pasta products annually for other producers. Pursuant to the Sysco Agreement, AIPC is the primary supplier of pasta for Sysco and has the exclusive right to supply pasta to Sysco for sale under Sysco's name. Sysco, which operates from approximately 65 operations and distribution facilities nationwide, provides products and services to approximately 230,000 restaurants, hotels, schools, hospitals, and other institutions, as well as the U.S. government. For the nine-month fiscal year ended September 30, 1996, sales attributed to Sysco represented approximately 27% of the Company's net revenues. Sysco recently exercised its option to renew its agreement with AIPC for an additional three years through June 30, 2000, and has options to renew the agreement for additional three-year periods through June 30, 2006. AIPC products are sold to Sysco on a cost-plus basis, with annual adjustments based on the prior year's costs. Under the Sysco Agreement, AIPC may not supply pasta products to any business other than Sysco in the United States, Mexico or Canada that operates as, or sells to, institutions and businesses which provide food for consumption away from home (i.e. foodservice businesses) without Sysco's prior consent. In 1996, Sysco honored the Company as one of the 10 best of its 1,300 suppliers. RAW MATERIALS AND SUPPLIES AIPC's ability to produce high-quality pasta generally begins with its purchasing durum wheat directly from farmers and grower-owned cooperatives in Canada, North Dakota, Montana, Arizona and California, rather than from grain exchanges. This direct purchasing method ensures that the extracted semolina meets AIPC's specifications since each variety of durum wheat has its own unique set of milling and pasta making characteristics. The Company has several sources for durum wheat and is not dependent on any one supplier. As a result, the Company believes that it has adequate sources of supply for durum wheat. The Company occasionally buys and sells semolina to balance its milling and production requirements. 36 39 Durum wheat is a cash crop whose average monthly market price has fluctuated from a low of $5.18 per bushel to a high of $7.49 per bushel in the last four years. Durum wheat does not have a related futures market to hedge against such price fluctuations. The Company manages its durum wheat cost risk through long-term contracts and other arrangements with its customers and advance purchase contracts for durum wheat which are generally less than six months' duration. Long-term supply agreements and other customer arrangements which allow for the pass-through of durum wheat cost changes in certain circumstances represented approximately 60% of AIPC's total revenue for the nine-month period ended June 30, 1997. Management believes that the Company will significantly increase the percentage of revenues pursuant to contracts which include provisions for sales price adjustments as it begins to generate CPC revenues in 1998. See "Risk Factors -- Raw Materials." AIPC purchases its packaging supplies, including poly-cellophane, paperboard cartons, boxes and totes from third parties. Management believes the Company has adequate sources of packaging supplies. FACILITIES AND EXPANSION Production Facilities. AIPC's pasta production plants are located near Kansas City in Excelsior Springs, Missouri, and in Columbia, South Carolina. The Company's facilities are strategically located to support North American distribution of AIPC's products and benefit from the rail and interstate highway infrastructure. At June 30, 1997, the Company's facilities had combined annual milling and production capacity of approximately 300 million pounds of durum semolina and 330 million pounds of pasta. The Company has pursued a capacity expansion strategy over the past several years. During 1994, the Company completed a $30.0 million expansion of the Missouri plant, increasing production capacity more than 70% to 230 million pounds per year and, at the same time, increased its durum wheat milling capacity over 100% to support pasta production of approximately 300 million pounds per year. In 1995, the Company added approximately 100 million pounds of pasta capacity by constructing its South Carolina plant. AIPC has commenced an $86.0 million capital expenditure program to increase its current pasta production capacity by 90% from 330 million pounds per year to 620 million pounds per year in 1998. The additional capacity at the Missouri facility will combine high-speed, high-output pasta production lines with the ability to produce a full range of products, and will include a distribution center expansion. The capital expenditures program also includes the construction of a durum wheat mill in South Carolina which adjoins the existing plant facility, a 200% increase in the facility's pasta production capacity, and a doubling of the capacity of the South Carolina distribution facility. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Risk Factors -- Substantial Planned Investment in Milling and Production Facilities." The additional capacity will be used to produce Mueller's brand pasta and take advantage of other market opportunities. By the second quarter of fiscal 1998, AIPC will assume production of substantially all of CPC's Mueller's pasta, which management estimates will require a minimum production capacity of 200 million pounds a year. CPC's guaranteed annual minimum purchases of 175 million pounds pursuant to the CPC Agreement will utilize approximately 60% of the Company's newly-added capacity. 37 40 The following chart illustrates the historical and budgeted growth of AIPC's milling and pasta production capacity: MILLING AND PASTA PRODUCTION CAPACITY [Line graph depicting the Company's year-end milling and pasta production capacity from 1992 through 1998 (1997-98 data based on budgeted future expansion)] Each of the Company's major capacity expansion programs has been completed on schedule and within budget, and has delivered the targeted levels of output and efficiency. See "Risk Factors -- Substantial Planned Investments in Milling and Production Facilities" and "Management of Growth and Implementation of CPC Business." Milling and Pasta Production Processes. Durum wheat is currently delivered to AIPC's mill in Missouri by railcar directly from the durum wheat elevators in the northern United States and Canada under a long-term rail contract. The wheat is then unloaded, blended and pre-cleaned. Next, the moisture content of the wheat is raised to the optimal level required for milling (the "tempering process"). The cleaned and tempered wheat is then conveyed to the mill where grinding, sifting, and purifying processes extract the purest possible semolina. The semolina milling is controlled from a central control room located in the mill where a single AIPC team member monitors and directs the mill's entire milling, cleaning and storage process. Semolina is then pneumatically distributed from the mill to AIPC's pasta production facility in Missouri and, through the use of a leased fleet of 33 dedicated railcars, transferred to South Carolina. After being mixed with water, the semolina is extruded into the desired shapes and travels through computer-controlled high-temperature dryers and stabilized at room temperature. The Company's entire pasta production process is controlled by programmable logic controllers which enable all of the production lines to be operated and monitored by minimal staff. The pasta is then packaged in a wide variety of packaging configurations on highly-automated film, carton and bulk packaging systems and forwarded through automated conveyors to the distribution center to be palletized and stored prior to shipment. 38 41 The Company's vertically-integrated milling and pasta production process is depicted in the following chart: MILLING AND PASTA PRODUCTION PROCESS MILLING AND PASTA PRODUCTION PROCESS GRAPH [Illustration of the Company's milling and pasta production process in sequential steps commencing with a durum wheat mill, a pasta production facility and a warehouse and distribution center.] Distribution. The Company's three distribution centers are strategically located in South Carolina, Missouri and Southern California to serve a national market. The Company currently owns the distribution center adjoining its Missouri plant and leases its distribution center in South Carolina as well as space in a public warehouse in Pomona, California. The Company completed construction of the integrated warehousing and distribution facilities at its Missouri and South Carolina facilities during 1995. The warehousing and distribution facilities are integrated with the Company's production facilities which allows cased, finished products to be automatically conveyed via enclosed case conveying systems from the production facilities to the distribution centers for automated palletization and storage until shipping. The combination of integrated facilities and multiple distribution centers enables AIPC to realize significant distribution cost savings and provides lead time, fill rate and inventory management advantages to its customers. The operation of the Missouri and South Carolina distribution centers is outsourced under a long-term agreement with Lanter Company, a firm specializing in warehouse and logistics management services. 39 42 SALES AND MARKETING AIPC actively markets its products through approximately 15 internal sales and marketing staff and approximately 30 independent food brokers and distributors throughout the United States. AIPC's senior management is directly involved in the selling process in all customer markets. The Company's sales and marketing strategy is to provide superior quality, complete product offering, distinctive packaging specifically tailored to customers' needs, competitive pricing and superior customer service to attract new customers and grow existing customers' pasta sales. One of the Company's core strengths has been the development of strong customer relationships and the establishment of a reputation as a technical and service expert in the pasta field. As part of its overall customer service strategy, AIPC uses its category management expertise to assist customers in their supply management decisions regarding pasta and new products. The Company's category management experts use on-line Nielsen's supermarket data to drive pasta category growth by recommending pricing, SKU sets and shelf spacing to both private label and branded customers. AIPC representatives also assist food processors in incorporating AIPC's pasta as an ingredient in its customers' food products. The Company sponsors an annual "Pasta Technology Forum" which is a training and development program for its customers' production and new product personnel. AIPC also produces and distributes a quarterly newsletter, the Pasta Advisor, to its institutional customers which contains recommendations regarding storage, conveying, cooking and ingredient combination. In addition to technical education, the Company provides dedicated technical support to its customers by making recommendations regarding the processing of pasta in their facilities. AIPC believes that these value-added activities provide customers with a better appreciation and awareness of the Company and its products. The Company consistently demonstrates its commitment to customer service through the development of enhanced customer service programs. Examples of these programs include the creation by AIPC of an ECR model which uses EDI and vendor replenishment programs to assist its key retail customers, and category management services for its private label and branded customers. These programs also enable the Company to more accurately forecast production and sales demand, enabling higher utilization of production capacities and lower average unit costs. AIPC has also created a dedicated sales force for Sysco, its largest customer, to provide regional sales support. MANAGEMENT INFORMATION SYSTEMS The Company's production, distribution, sales and marketing operations are supported by an IBM AS400-based computer system. The system utilizes licensed BPCS manufacturing software which has been tailored to the Company's management processes and integrates its production, purchasing, order entry, inventory management, distribution and accounting systems. The Company's MIS were recently upgraded in anticipation of the Company's growth and desire to continue to offer its customers value-added, efficient services. The Company has invested substantial amounts in EDI and ECR to streamline the order, invoicing and inventory management functions. The Company believes that its recent hardware and software upgrades have adequately addressed the systems operations issues relating to the year 2000. COMPETITION The Company operates in a highly competitive environment against numerous well-established national, regional and foreign companies, and many smaller companies. The Company's competitors include both independent pasta producers and pasta divisions and subsidiaries of large food products companies. The Company competes in the procurement of raw materials, the development of new products and product lines, the improvement and expansion of previously introduced products and product lines and the production, marketing and distribution of its products. AIPC's products compete with a broad range of food products, both in the retail and institutional customer markets. Competition in these markets generally is based on product quality and taste, pricing, packaging and customer service and logistics capabilities. The Company believes that it currently competes favorably with respect to these factors. See "Risk Factors -- Competition" and "Industry." 40 43 AIPC's direct competitors include large multi-national companies such as Hershey and Borden and other competitors such as Dakota Growers, Philadelphia Macaroni and Zerega's. The Company also competes against foreign companies such as Italian pasta producers De Cecco and Barilla and competes, indirectly, against food processors such as Kraft, General Foods, Inc., American Home Food Products Corporation, Campbell Soup Company and Stouffers Corp., that produce pasta internally as an ingredient for use in their food products. See "-- Industry." TRADEMARKS AND PATENTS The Company holds a number of federally registered and common law trademarks which it considers to be of considerable value and importance to its business including: AIPC American Italian Pasta Company, American Italian, and Pasta LaBella. The Company has registered the AIPC American Italian Pasta Company(R), Pasta LaBella(R), Montalcino(R) and other trademarks with the U.S. Patent and Trademark Office. AIPC has filed a registration application with the U.S. Patent and Trademark Office for the Calabria(TM) and Heartland(TM) trademarks. A patent application is currently pending with respect to the proprietary flavoring process for Pasta LaBella flavored pasta. REGULATION The Company is subject to various laws and regulations relating to the operation of its production facilities, the production, packaging, labeling and marketing of its products and pollution control, including air emissions, which are administered by federal, state, and other governmental agencies. The Company's production facilities are subject to inspection by the U.S. Food and Drug Administration and Occupational Safety and Health Administration, the Missouri Department of Natural Resources and the South Carolina Department of Health and Environmental Control. The Company believes that the cost of its compliance with existing laws and regulations will not have a material effect on its results of operations or financial condition. EMPLOYEES As of June 30, 1997, the Company employed 287 full-time persons, of whom 134 were salaried employees and 153 were hourly employees. The Company's employees are not represented by any labor unions. AIPC considers its employee relations to be good. LEGAL PROCEEDINGS The Company currently is not a party to any material litigation nor is it aware of any litigation threatened against it which, if commenced and adversely determined, would likely have a material adverse effect upon the business or financial condition of the Company. 41 44 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning each of the directors and executive officers of the Company as of the date of this Prospectus:
NAME AGE POSITION ---- --- -------- Horst W. Schroeder........................ 56 Chairman of the Board of Directors Timothy S. Webster........................ 35 President and Chief Executive Officer; Director Norman F. Abreo........................... 47 Executive Vice President -- Operations David E. Watson........................... 41 Executive Vice President and Chief Financial Officer David B. Potter........................... 38 Senior Vice President -- Procurement Daniel M. Keller.......................... 42 Senior Vice President -- Sales and Marketing Jonathan E. Baum.......................... 36 Director David Y. Howe............................. 33 Director Robert H. Niehaus......................... 41 Director Amy S. Rosen.............................. 27 Director James A. Schlindwein...................... 68 Director Lawrence B. Sorrel........................ 38 Director Richard C. Thompson....................... 46 Director
Horst W. Schroeder has served as Chairman of the Board of Directors of the Company since June 1991, and as a Director of the Company since August 1990. Since 1990, Mr. Schroeder has been President of HWS & Associates, Inc., a Hilton Head, South Carolina management consulting firm owned by Mr. Schroeder. Prior to founding HWS & Associates, Mr. Schroeder served the Kellogg Company, a manufacturer and marketer of ready-to-eat and other convenience food products, in various capacities for more than 20 years, most recently as President and Chief Operating Officer. He is a manager of PSF Holdings, L.L.C. and has served as Chairman of the Board of its wholly-owned subsidiary, Premium Standard Farms, Inc., a vertically-integrated pork producer, since 1996. Timothy S. Webster has served as President of the Company since June 1991, as President and Chief Executive Officer of the Company since May 1992, and as a Director since June 1989. Mr. Webster joined the Company in April 1989, and served as Chief Financial Officer from May 1989 to December 1990 and as Chief Operating Officer from December 1990 to June 1991. Prior to joining the Company, Mr. Webster was a manager with the Entrepreneurial Services Group of Arthur Young and Company (a predecessor firm to Ernst & Young LLP) from April 1987 to April 1989. Norman F. Abreo joined the Company in December 1991, serving initially as the Company's Vice President -- Manufacturing. He became Senior Vice President - -- Operations in June 1995, and Executive Vice President -- Operations in June 1997. Prior to joining the Company, he was Plant Manager for the Coca-Cola Enterprises, Inc. plant in New Orleans, Louisiana, from December 1987 to December 1991; Director of Operations for Borden Pasta Group from December 1985 to December 1987; and Plant Manager of the Borden Pasta Group's New Orleans facility from March 1979 to December 1985. David E. Watson joined the Company in June 1994 as its Senior Vice President and Chief Financial Officer. He was promoted to Executive Vice President and Chief Financial Officer in June, 1997. Prior to joining AIPC, Mr. Watson spent 18 years with the accounting firm of Arthur Andersen & Co., most recently as partner-in-charge of its Kansas City and Omaha Business Consulting Group practice. Mr. Watson is a certified public accountant. David B. Potter joined the Company in 1993 as its Director of Procurement. He was named Vice President in 1994 and Senior Vice President -- Procurement in June 1997. Before joining the Company, Mr. Potter had worked in numerous areas of Hallmark Cards and its subsidiary, Graphics International Trading Company, from 1991 to 1993, most recently as Business Logistics Manager. 42 45 Daniel M. Keller joined the Company in 1997 and was named Senior Vice President -- Sales and Marketing in June 1997. He was employed by Anheuser-Busch, Inc. in its Eagle snacks subsidiary where he most recently served as Vice President of Sales. Previously, he was employed in brand management and business planning positions at Pepsico, Inc. in its Frito Lay division, and BF Goodrich & Co., Inc. Jonathan E. Baum has served as a Director of the Company since 1994. He has been the Chairman and Chief Executive Officer of George K. Baum & Company, an investment banking firm, since 1994. Previously, he had been a Vice President with Salomon Brothers Inc. David Y. Howe has served as a Director of the Company since 1995. He is a Vice President of Citicorp Venture Capital, Ltd., a venture capital firm, where he has been employed since 1993. From 1990 to 1993, he had been employed by Butler Capital, a private investment company. He is also a director of Aetna Industries, Inc., Brake-Pro, Inc., Cable Systems International, Inc., Copes-Vulcan, Inc., Pen-Tab Industries, Inc., Milk Specialties Company and LifeStyle Furnishings, Ltd. Robert H. Niehaus has served as a Director of the Company since 1992. He has been a Managing Director of Morgan Stanley & Co. Incorporated since 1990. He is also Vice Chairman and a Director of The Morgan Stanley Leveraged Equity Fund II, Inc., the general partner of MSLEF, and Morgan Stanley Capital Partners III, Inc., the general partner of the general partner of the MSCP Funds. He is also a director of Fort Howard Corporation, Silgan Corporation, Silgan Holdings Inc., Waterford Wedgewood UK, plc, of which he is the Chairman, and Waterford Crystal Ltd. Amy S. Rosen has served as a Director of the Company since April, 1997. She is an Associate of Morgan Stanley & Co. Incorporated, where she has been employed since 1994. Ms. Rosen also is an Associate of Morgan Stanley Capital Partners III, Inc., the general partner of the general partner of the MSCP Funds. Previously, she was employed by The Blackstone Group for two years. James A. Schlindwein has served as a Director of the Company since 1995. Prior to his retirement in September 1994, Mr. Schlindwein served as Executive Vice President-Merchandising Services and Director of Sysco Corporation, a national institutional foodservice distributor, where he had served since 1980. He is also a director of Riser Foods, Inc. Lawrence B. Sorrel has served as a Director of the Company since 1992. He is a Managing Director of Morgan Stanley & Co. Incorporated where he has been employed since 1986. He is also a Director of Morgan Stanley Capital Partners III, Inc., the general partner of the general partner of the MSCP Funds, and The Morgan Stanley Leveraged Equity Fund II, Inc., the general partner of MSLEF. He is also a director of Emmis Broadcasting Corporation, Vanguard Health Systems, Inc., LifeTrust America, Inc., and The Compucare Company. Richard C. Thompson has served as a Director of the Company since 1986. Mr. Thompson is an experienced entrepreneur and, since 1993, has been President and Chief Executive Officer of Thompson's Pet Pasta Products, Inc., a pet food producer. He is the founder of the Company and served as its President from May 1986 to June 1991. COMPOSITION OF BOARD OF DIRECTORS Upon consummation of the Offering, it is anticipated that the Company's Board of Directors will consist of seven directors, divided into three classes, with the members of each class to serve for staggered three-year terms. The initial term of the first class will expire at the annual meeting of stockholders to be held in 1998, the initial term of the second class will expire in 1999 and the initial term of the third class will expire in 2000. Messrs. and will be included in the first class, Messrs. , and and will be included in the second class and Messrs. Webster, Schroeder and will be included in the third class. Directors will hold office for a term of three years and will serve until their successors are elected and qualified. Officers are elected annually by the Board of Directors and serve until their successors are duly elected and qualified. The Company intends to increase the size of the Board by adding two additional independent directors in the future. 43 46 COMPENSATION OF DIRECTORS Mr. Schlindwein is currently the only director who receives fees for serving as a director of the Company. Mr. Schlindwein receives a fee of $3,000 for attendance at each meeting of the Board of Directors, with no additional amounts payable with respect to separate committee meetings. None of the other directors of the Company is paid directors' fees for serving on the Board of Directors or its committees. All directors are reimbursed for out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors and meetings of Board committees. COMMITTEES OF THE BOARD Under the Company's By-laws, the Board of Directors may establish one or more committees, appoint one or more members of the Board of Directors to serve on each committee, fix the exact number of committee members, fill vacancies, change the composition of the committee, impose or change the duties of the committee and terminate the committee. The Board of Directors has established an Audit Committee and a Compensation Committee. Each such committee has two or more members who serve at the pleasure of the Board of Directors. The Compensation Committee is responsible for reviewing and making recommendations to the Board of Directors with respect to the salaries, bonuses, and other compensation paid to key employees and officers of the Company, including the terms and conditions of their employment, and administers all stock option and other benefit plans (except with respect to participation by executive officers in stock option and other equity incentive plans of the Company which will be made by the Board of Directors or a committee comprised solely of outside directors, unless otherwise specified in the applicable plan documents) affecting key employees' and officers' direct and indirect remuneration. Currently, Messrs. Niehaus, Schroeder and Sorrel serve on the Compensation Committee. The Audit Committee is responsible for reviewing the Company's financial statements, audit reports, internal financial controls and the services performed by the Company's independent public accountants, and for making recommendations with respect to those matters to the Board of Directors. Messrs. Schlindwein and Baum serve on the Audit Committee. 44 47 EXECUTIVE COMPENSATION The following table summarizes compensation information with respect to the President and Chief Executive Officer ("CEO") of the Company and each of the Company's most highly-compensated executive officers for services rendered during the nine-month fiscal year ended September 30, 1996 (collectively, with the CEO, the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG-TERM FISCAL PERIOD COMPENSATION COMPENSATION AWARDS -------------------- ------------ FISCAL SECURITIES ALL OTHER NAME AND PRINCIPAL POSITION PERIOD(1) SALARY($) BONUS($) UNDERLYING OPTIONS(#) COMPENSATION --------------------------- --------- --------- -------- --------------------- ------------ Timothy S. Webster................. 1996 $185,615 $125,000 -- $ 4,967(2) President and Chief Executive Officer Horst W. Schroeder................. 1996 98,047 40,000 -- 330,000(3) Chairman of the Board David E. Watson.................... 1996 119,510 37,500 -- 4,484(4) Executive Vice President and Chief Financial Officer Norman F. Abreo.................... 1996 99,856 37,500 -- 1,226(4) Executive Vice President--Operations David B. Potter.................... 1996 78,000 29,000 -- 2,777(4) Senior Vice President--Procurement
- ------------------------- (1) The Company's 1996 fiscal year extended from January 1, 1996 until September 30, 1996. Subsequent fiscal years will cover a 52- or 53-week period ending on the last Friday of September. (2) Includes payments in the amount of $4,449 under the American Italian Pasta Company Retirement Savings Plan and premiums in the amount of $518 paid by the Company on a split-dollar life insurance policy. (3) Represents a bonus which Mr. Schroeder is required to repay to the extent that he provides less than 30 days of service during any calendar year ending on or prior to December 31, 1998. Mr. Schroeder's service during the 1996 fiscal year resulted in $82,000 of such bonus being no longer subject to such contingent repayment obligation. (4) Represents payments under the American Italian Pasta Company Retirement Savings Plan. No stock options were granted to any of the Named Executive Officers during the nine-month fiscal year ended September 30, 1996. The following table sets forth certain information with respect to stock options granted to each of the Named Executive Officers that were outstanding at September 30, 1996: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
AT SEPTEMBER 30, 1996 --------------------------------------------------------- NUMBER OF VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS(1) SHARES ACQUIRED VALUE --------------------------- --------------------------- NAME UPON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ---------------- -------- ----------- ------------- ----------- ------------- Timothy S. Webster...... -- -- Horst W. Schroeder...... -- -- David E. Watson......... -- -- Norman F. Abreo......... -- -- David B. Potter......... -- --
- ------------------------- (1) Based on the assumed initial public offering price of $ per share. 45 48 EMPLOYMENT AGREEMENTS Each of Horst W. Schroeder and Timothy S. Webster currently has an employment agreement with the Company. Such agreements will be amended or replaced prior to consummation of the Offering. The Company intends to enter into employment agreements with Messrs. Watson and Abreo in August 1997. MANAGEMENT BONUS PLAN The Company maintains a management bonus plan for certain salaried employees of the Company, including the Named Executive Officers. The plan permits these employees to earn cash performance bonus awards of up to a percentage of their respective salaries as determined by the Board of Directors, or by management on the Board's behalf. The amount of any bonus is based upon the Company's performance and the individual performance of such participant. See "Management--Executive Compensation." STOCK OPTION PLANS 1992 NON-STATUTORY STOCK OPTION PLAN On October 29, 1992, the Company's Board of Directors and stockholders adopted the American Italian Pasta Company Non-Statutory Stock Option Plan (the "1992 Plan"). The purpose of the 1992 Plan is to secure for the Company and its stockholders the benefits of the incentive inherent in stock ownership by officers and other key employees of the Company. The 1992 Plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee has the power and sole discretion to determine the persons to whom options are granted and the number of shares covered by those options, subject in each case to the limitations set forth in the 1992 Plan. Options may be granted under the 1992 Plan only to officers and key employees of the Company. The period during which an option may be exercised (not to exceed 13 years), and the time at which it becomes exercisable, is fixed by the Compensation Committee at the time the option is granted. Options granted under the 1992 Plan are not transferable by the holder other than by will or the laws of descent and distribution. The number of shares which may be issued and sold pursuant to options granted under the 1992 Plan may not exceed shares (subject to adjustment for stock dividends, stock splits, combinations or reclassifications of shares, or similar transactions). No consideration is paid to the Company by any optionee in exchange for the grant of an option. The per share exercise price for an option granted under the 1992 Plan is determined by the Compensation Committee. Certain provisions of the 1992 Plan may have the effect of discouraging or delaying possible takeover bids. In the event of a "Change of Control," all of the outstanding options automatically become immediately exercisable in full. A "Change of Control" is generally defined to take place when disclosure of such a change would be required by the proxy rules promulgated by the Securities and Exchange Commission or when (i) certain persons acquire beneficial ownership of 25% or more of the combined voting power of the Company's voting securities, (ii) less than a majority of the directors are persons who were either nominated or selected by the Board of Directors, (iii) a merger involving the Company in which the Company's stockholders own less than 80% of the voting stock of the surviving corporation; or (iv) a liquidation of the Company or sale of substantially all the assets of the Company occurs. In the event that the Company is not the surviving corporation of any merger, consolidation, reorganization or acquisition by another corporation, outstanding options under the 1992 Plan may be assumed, or replaced with new options of comparable value, by the surviving corporation. If the surviving corporation does not assume or replace outstanding options, or in the event the Company is liquidated or dissolved, then subject to certain limitations, each holder of outstanding options may exercise all or part of such options (even if the options would not otherwise have been exercisable in full) during the period beginning 30 days before the event triggering the acceleration, and ending on the day before such event. Generally, the exercise price of an option is at least equal to the fair market value of the Common Stock on the date of grant. As of the date of this Prospectus, options to purchase shares of Common Stock at 46 49 exercise prices ranging from $ to $ per share (with a weighted average exercise price of $ per stock) were issued and outstanding under the 1992 Plan. The outstanding options under the 1992 Plan expire at dates ranging from October 2002 to April 2007. None of the executive officers of the Company have exercised any options prior to the date of this Prospectus. 1993 NON-QUALIFIED STOCK OPTION PLAN The American Italian Pasta Company 1993 Non-Qualified Stock Option Plan (the "1993 Plan") was adopted by the Board of Directors and approved by the stockholders of the Company effective December 8, 1993. The 1993 Plan was adopted to compensate and provide incentives for mid-level managers of the Company. The 1993 Plan is also administered by the Compensation Committee. The Compensation Committee has full and final authority in its discretion, subject to the provisions of the 1993 Plan and applicable law, to determine the individuals to whom and the time or times at which options shall be granted and the number of shares of Common Stock covered by each option. Options may be granted under the 1993 Plan to mid-level management. The period during which an option may be exercised (not to exceed ten years), and the time at which it becomes exercisable is fixed by the Compensation Committee at the time the option is granted. Options granted under the 1993 Plan are not transferrable by the holder other than by will or the laws of dissent and distribution. The number of shares which may be issued and sold pursuant to options granted under the 1993 Plan may not exceed shares (subject to adjustment for stock dividends, stock splits, combinations or reclassifications of shares or similar transactions). No consideration is paid to the Company by any optionee in exchange for the grant of an option. The per share exercise price for an option granted under the 1993 Plan is determined by the Compensation Committee. In the event of any merger, recapitalization, consolidation, split-up, spin-off, repurchase, distribution or similar transaction effecting the Common Stock, the Compensation Committee may take such action as in its sole discretion that deems appropriate. The Compensation Committee may authorize the issuance or assumption of options or similar rights in connection with any such transaction whether or not the Company is a surviving or continuing corporation, and upon such terms and conditions as it may deem appropriate. The exercise price of an option is generally at least equal to the fair market value of the Common Stock on the date of grant. As of the date of this Prospectus, options to purchase shares of Common Stock at exercise prices ranging from $ to $ per share (with a weighted average exercise price of $ per share) were issued and outstanding under the 1993 Plan. The outstanding options under the 1993 Plan expire at dates ranging from December 2003 to December 2006. 401(K) PROFIT SHARING PLAN The Company adopted the American Italian Pasta Company Retirement Savings Plan (the "401(k) Plan") effective January 1, 1992. In general, employees of the Company who have completed one year of service (as defined in the 401(k) Plan) are eligible to participate in the 401(k) Plan. Participants may make contributions to the 401(k) Plan by voluntarily reducing their salary from the Company up to a maximum of 12% of total compensation or $9,500 (or such higher amount as is prescribed by the Secretary of the Treasury for cost of living adjustments), whichever is less, and the Company matches such contributions to the extent of 50% of the first 6% of a participant's salary reduction. The Company's matching contributions vest 25% per year and are 100% vested after 4 years of service. In addition to matching contributions, the Company may contribute additional amounts determined by it in its sole discretion which are allocated to a participant's account in the proportion that such participant's compensation bears to the total compensation of all participants for the plan year. These additional contributions vest in the same manner as the matching contributions. Subject to certain conditions and limitations, participants of the 401(k) Plan may elect to invest up to 50% of their matching contribution accounts into shares of Common Stock of the Company. 47 50 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION All compensation decisions during the fiscal period ended September 30, 1996 for each of the Named Executive Officers were made by the Compensation Committee of the Board of Directors. Mr. Schroeder, Chairman of the Board, is a member of the Compensation Committee. See "Certain Relationships and Related Transactions." Following the consummation of the Offering, decisions with respect to the base salary and cash bonuses paid to executive officers will be made by the Compensation Committee and decisions with respect to the participation of executive officers in stock option and other equity incentive plans of the Company will be made by the Board of Directors or a committee comprised solely of outside directors. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS STOCKHOLDERS AGREEMENT Concurrently with the Offering, the Company, the Morgan Stanley Stockholders, Citicorp Venture Capital, Ltd. and CCI Partners III, L.P. (collectively "Citicorp"), affiliated entities of George K. Baum & Company ("GKB"), and Messrs. Schroeder, Schlindwein, Thompson, Webster, Watson, Abreo, Potter and Keller and certain other existing stockholders of the Company (collectively, the "Existing Stockholders") will amend their existing Stockholders Agreement, which sets forth certain rights and obligations of such Existing Stockholders. The amended Stockholders Agreement will provide that until December 31, 1998 Existing Stockholders (other than the Morgan Stanley Stockholders and certain management stockholders) may not sell or pledge any shares of Common Stock except through the exercise of their "piggyback" registration rights, to certain permitted transferees, or concurrently with certain private sales of Common Stock by the Morgan Stanley Stockholders. After December 31, 1998, the Existing Stockholders (other than the Morgan Stanley Stockholders) will also be entitled to sell their shares in market transactions and through the exercise of their "demand" registration rights and Citicorp and Mr. Thompson will also be permitted to sell shares of Common Stock in private transactions, subject to the Company's right of first refusal. The amended Stockholders Agreement will not limit sales by the Morgan Stanley Stockholders. The amended Stockholders Agreement will grant the Existing Stockholders certain demand registration rights. In addition, the Existing Stockholders will be entitled, subject to certain limitations, to register shares of Common Stock in connection with certain registration statements filed by the Company for its own account or the account of its stockholders. The amended Stockholders Agreement will contain customary terms and provisions with respect to, among other things, registration procedures and certain rights to indemnification granted by the parties thereunder in connection with any such registration. So long as the shares of Common Stock of the Company owned by the Morgan Stanley Stockholders constitute at least 35% of the outstanding Common Stock and there are seven directors on the Board, the Morgan Stanley Stockholders will have the right to designate three Board nominees. If there are seven directors on the Board and the Morgan Stanley Stockholders' ownership percentage falls below 35% but equals or exceeds 25%, or falls below 25% but equals or exceeds 5%, then the Morgan Stanley Stockholders will have the right to designate two director nominees or one director nominee, respectively. If the size of the Board is increased, the Morgan Stanley Stockholders will have the right to designate the number of director nominees which constitutes, as nearly as may be, the same percentage representation on the Board of Directors as if the size of the Board of Directors had remained fixed at seven. In addition, the Stockholders Agreement will provide that the Chairman of the Board and the President and Chief Executive Officer shall also be designated as director nominees. The Existing Stockholders will agree to vote all of their shares of Class A Common Stock in favor of the director nominees designated pursuant to the Stockholders Agreement. At least two members of the Board of Directors will be independent directors. So long as the Morgan Stanley Stockholders own 10% of the outstanding shares of Common Stock, the Morgan Stanley Stockholders may designate one member of each Board committee. 48 51 The amended Stockholders Agreement will provide that so long as the Morgan Stanley Stockholders own at least 25% of the outstanding shares of Common Stock, neither the Company nor its subsidiaries (if any) will take any of the following significant actions without the approval of the Board of Directors and the Morgan Stanley Stockholders: (i) the appointment or removal of the Chairman of the Board; (ii) any merger, consolidation or other similar business combination; (iii) any disposition of a majority of the Company's tangible assets; (iv) subject to certain exceptions, any change in the authorized capital or recapitalization, or the creation of any new classes of capital stock, or the sale, distribution, exchange, redemption of capital stock or capital stock equivalents; (v) any amendment to the charter or by-laws or any change in jurisdiction of incorporation; (vi) the approval of any dissolution or plan of liquidation; (vii) any general assignment for the benefit of creditors or the institution of any bankruptcy or insolvency proceeding; (viii) the declaration of any dividend or any redemption or repurchase of any such capital stock (except dividends paid-in-kind and repurchases made pursuant to employee benefit plans or employment agreements); (ix) in certain circumstances, the creation, issuance, assumption, guarantee or incurrence of indebtedness that increases the aggregate amount of indebtedness existing on the date of the amended Stockholders Agreement by at least $30 million; (x) the termination of Ernst & Young LLP or the selection of another auditor; (xi) any strategic acquisition of, or investment in the assets or a business of, a third party with a fair market value of $30 million or more; (xii) acquisition or construction of new pasta production facilities with a cost in excess of $30 million; or (xiii) any commitment to do any of the foregoing actions. In addition, as long as the Morgan Stanley Stockholders own at least 35% of the outstanding Common Stock, at least one of the directors designated by the Morgan Stanley Stockholders must approve the appointment or removal of the Chief Executive Officer or the Chief Financial Officer. The amended Stockholders Agreement will provide that certain transfers of shares by the Existing Stockholders (other than the Morgan Stanley Stockholders) will be subject to the approval of the Board of Directors and, for so long as the Morgan Stanley Stockholders own at least 10% of the shares of Common Stock, the Morgan Stanley Stockholders. After giving effect to the Offering, the Morgan Stanley Stockholders will own approximately % of the Common Stock of the Company ( % if the U.S. Underwriters' over-allotment option is exercised in full). The Morgan Stanley Stockholders have informed the Company that they intend, following the consummation of the Offering, to convert such number of their shares of non-voting Common Stock so that, following such conversion, the Morgan Stanley Stockholders will own, in the aggregate, 49% of the outstanding voting Common Stock of the Company. 1997 PRIVATE EQUITY FINANCING In April 1997, the Company sold an aggregate of 517,695 shares of Old Class A Common Stock (as defined in "Description of Capital Stock -- General") to current stockholders of the Company for an aggregate purchase price of $22,291,947, or $43.06 per share, determined by an independent valuation firm to be fair value for the shares. The MSCP Funds purchased a total of 418,021 shares for $18,000,000. Affiliated entities of GKB, including Excelsior Investors, LLC ("Excelsior") in which Mr. Thompson has a minority interest, purchased 69,670 shares for $2,999,861. These shares include 53,971 shares purchased by Excelsior. Mr. Schroeder, a Director of the Company, purchased 8,000 shares for $344,480. Mr. Schlindwein, also a Director of the Company, and his wife purchased 4,645 shares for $200,000, individually and indirectly through JSS Management Company, Ltd., of which each of Mr. and Mrs. Schlindwein are general partners. In addition, a group of executive officers of the Company contributed an aggregate of $729,996 to the Company for 16,953 shares, including $142,159 by Mr. Webster, $298,535 by Mr. Watson, $36,472 by Mr. Abreo and $91,472 by Mr. Potter. In connection with these sales and purchases, the Company loaned an aggregate of $297,513 to these executive officers to finance their stock purchases, including $112,159 to Mr. Webster, $48,535 to Mr. Watson, $36,472 to Mr. Abreo and $21,472 to Mr. Potter. Each of these loans are evidenced by a promissory note made payable to the Company and secured by shares of Old Class A Common Stock. Such loans are to be repaid over a period of three years from the effective date of the loan and bear interest at the applicable federal rate. 49 52 FINANCIAL ADVISORY SERVICES Messrs. Niehaus and Sorrel and Ms. Rosen, all Directors of the Company, are employed by Morgan Stanley & Co. Incorporated. In 1997, Morgan Stanley Senior Funding, Inc., an affiliate of Morgan Stanley & Co. Incorporated, one of the U.S. Underwriters, served as the documentation agent under the agreements relating to the Company's Credit Facility, and acted as an arranger for the Credit Facility for which it received a fee in the amount of $311,875. Since 1994, the Company has paid fees to George K. Baum & Company's Investment Banking Division for investment banking and financial advisory services and has paid George K. Baum & Company Professional Investment Advisors Division fees for investment advice provided with respect to the 401(k) Plan. Jonathan E. Baum, a Director of the Company, owns all voting shares of George K. Baum Holdings, Inc., which owns 100% of George K. Baum & Company, one of the U.S. and International Underwriters. MANAGEMENT INDEBTEDNESS In April 1995 and April 1997, the Company loaned funds to Messrs. Webster, Watson, Abreo, Potter and Keller to purchase shares of Old Common Stock and Old Class A Common Stock at prices ranging between $30.17 and $43.06 per share, respectively. Each loan was evidenced by a promissory note bearing interest at the then applicable federal rate and payable in equal installments over three years. The table below sets forth the aggregate number of shares purchased with funds loaned by the Company, the original aggregate loan amounts, and the aggregate loan balances as of June 30, 1997.
NUMBER OF ORIGINAL LOAN LOAN BALANCE AT EXECUTIVE OFFICER SHARES BALANCE JUNE 30, 1997 - ----------------- --------- ------------- --------------- Timothy S. Webster...................................... 3,480 $138,559 $120,959 David E. Watson......................................... 2,327 84,735 60,602 Norman F. Abreo......................................... 1,177 46,422 39,789 David B. Potter......................................... 829 31,422 24,789 Daniel M. Keller........................................ 581 25,000 25,000
CONSULTING AGREEMENT WITH HWS & ASSOCIATES, INC. Pursuant to a consulting agreement between the Company and HWS & Associates, Inc. ("HWS"), a management consulting firm of which Mr. Schroeder, Chairman of the Board of Directors, is the sole owner, the Company paid to HWS $301,197 during fiscal 1994, and $133,359 during fiscal 1995, respectively for management consulting services performed and travel expenses incurred on behalf of the Company. The consulting arrangement terminated January 1, 1996 upon Mr. Schroeder's execution of his employment agreement with the Company. The Company's policy is that all transactions between the Company and its executive officers, directors and principal stockholders be on terms no less favorable than could be obtained from unaffiliated third parties or are subject to the approval of the Company's disinterested directors. PRODUCT SALES The Company sells milling by-products to Thompson's Pet Pasta Products, Inc., of which Richard C. Thompson, a director of the Company, is the President and Chief Executive Officer. Such sales were $357,000 and $292,000 for the nine-month fiscal period ended September 30, 1996 and the nine-month period ended June 30, 1997, respectively. Such sales were on substantially the same terms as the Company sells such products to unaffiliated third parties. 50 53 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of July 31, 1997, before and after giving effect to the sale of the shares of Class A Common Stock offered hereby, by (i) each person who is known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock, (ii) the Selling Stockholder, (iii) each director of the Company, (iv) each of the Named Executive Officers and (v) all directors and executive officers of the Company as a group.
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED PRIOR TO THE OFFERING AFTER THE OFFERING ------------------------------------------- ------------------------------------------- CLASS A TOTAL CLASS A CLASS B CLASS A COMMON COMMON COMMON STOCK(1) COMMON STOCK(1) SHARES STOCK(1)(2) STOCK(1)(6) -------------------- -------------------- BEING -------------------- -------------------- NAME OF BENEFICIAL OWNER NUMBER PERCENT(3) NUMBER PERCENT(4) OFFERED NUMBER PERCENT(5) NUMBER PERCENT(6) ------------------------ ------ ---------- ------ ---------- ------- ------ ---------- ------ ---------- The Morgan Stanley Leveraged Equity Fund II, L.P.(7)... 34.4% 70.2% -- % % 1221 Avenue of the Americas New York, NY 10020 Morgan Stanley Capital Partners III, L.P.(7)..... 14.6 29.8 -- 1221 Avenue of the Americas New York, NY 10020 Citicorp Venture Capital, Ltd.(8).......... 18.6 -- -- -- 399 Park Avenue New York, NY 10043 Richard C. Thompson(9)...... 17.1 -- -- 16 Kansas Avenue Kansas City, KS 66105 Horst W. Schroeder(10)(11)......... 7.5 -- -- -- Jonathan E. Baum(12)........ 9.1 -- -- -- David Y. Howe............... -- -- -- -- -- -- -- -- -- Robert H. Niehaus........... -- -- -- -- -- -- -- -- -- Amy S. Rosen................ -- -- -- -- -- -- -- -- -- James A. Schlindwein(13).... * -- -- -- * * Lawrence B. Sorrel.......... -- -- -- -- -- -- -- -- -- Timothy S. Webster(11)(14)........... 5.8 -- -- -- David E. Watson(11)......... 1.5 -- -- -- Norman F. Abreo(11)......... 1.2 -- -- -- David B. Potter(11)......... * -- -- -- * * All directors and executive officers as a group (13 persons)(11).............. 31.6 -- -- --
- ------------------------- * Less than 1%. (1) Beneficial ownership is determined in accordance with the rules of the Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options and warrants held by that person that are currently exercisable or will become exercisable within 60 days of the date of this Prospectus are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as otherwise indicated in a footnote to this table or as to be provided in the Stockholders Agreement (see "Certain Relationships and Related Transactions -- Stockholders Agreement"), the persons in this table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. 51 54 (2) The Company and the Selling Stockholder have granted an option to the U.S. Underwriters to purchase shares of Common Stock to cover over-allotments, if any. Such shares will not be sold unless the U.S. Underwriters exercise the over-allotment option, and the above table assumes that such over-allotment option will not be exercised. If the over-allotment option is exercised in full, the Company and Mr. Thompson will sell and , respectively, additional shares of Common Stock. (3) Based upon shares of Class A Common Stock outstanding, plus shares of Class A Common Stock issuable upon exercise of options, warrants and convertible securities which are included in the number of shares beneficially owned by such person. (4) Based upon shares of Class B Common Stock outstanding, plus shares of Class B Common Stock issuable upon exercise of options, warrants and convertible securities which are included in the number of shares beneficially owned by such person. (5) Based upon shares of Class A Common Stock to be outstanding upon the consummation of the Offering, plus shares of Class A Common Stock issuable upon exercise of options, warrants and convertible securities which are included in the number of shares beneficially owned by such person. (6) Based upon shares of Class A Common Stock to be outstanding upon the consummation of the Offering and shares of Class B Common Stock outstanding, plus shares of Common Stock issuable upon exercise of options, warrants and convertible securities which are included in the number of shares beneficially owned by such person. (7) The general partner of MSLEF and the general partner of the general partner of the MSCP Funds are wholly owned subsidiaries of MSDWD, the parent of Morgan Stanley & Co. Incorporated. (8) The shares beneficially owned by Citicorp Venture Capital, Ltd. include shares held by certain affiliates of Citicorp. (9) All of such shares are held by a limited partnership of which Mr. Thompson is the only limited partner and the president of the corporation which is the general partner of the limited partnership. (10) The shares beneficially owned by Mr. Schroeder include shares held by The Living Trust of Horst W. Schroeder and shares held by The Living Trust of Gisela I. Schroeder for the benefit of Mr. and Ms. Schroeder, respectively, and members of their family, as well as shares held by each of Bernd Schroeder and Isabel Lange, children of Mr. and Ms. Schroeder. Mr. Schroeder has voting power, but not investment power, with respect to all of these shares. (11) Includes options that are currently exercisable or will become exercisable within 60 days of the date of this Prospectus to purchase shares of Class A Common Stock as follows: Mr. Schroeder ( shares), Mr. Webster ( shares), Mr. Watson ( shares), Mr. Abreo ( shares), Mr. Potter ( shares), and all executive officers and directors as a group ( shares). (12) Includes shares held by George K. Baum Group, Inc., shares held by George K. Baum Capital Partners, L.P., shares held by George K. Baum Employee Equity Fund, L.P. and shares held by Excelsior Investors, LLC, the managing member of which is George K. Baum Merchant Banc, LLC. As an officer and/or equity owner of the entities holding such shares, Mr. Baum has voting power with respect to such shares. Except to the extent of his equity interest in the entities holding such shares, Mr. Baum disclaims beneficial ownership of such shares. (13) Includes shares held by JSS Management Company, Ltd. of which Mr. Schlindwein is an officer and equity owner and has voting power with respect to such shares. (14) Includes of the shares beneficially owned by Mr. Webster are held in various trusts for the benefit of Mr. Webster's family members, as well as by certain members of Mr. Webster's extended family. Mr. Webster has voting power, but not investment power, with respect to all of such shares. 52 55 DESCRIPTION OF CAPITAL STOCK GENERAL Prior to the Recapitalization, the Company's authorized capital stock consisted of 1,600,000 shares of Class A common stock, par value $.01 per share (the "Old Class A Common Stock"), and 2,100,000 shares of common stock, without par value (the "Old Common Stock"). The Old Class A Common Stock had a liquidation preference over the Old Common Stock equal to the greater of the per share purchase price of the Old Class A Common Stock or the amount holders of Old Common Stock are entitled to upon the liquidation. In connection with the Offering, the Company will amend and restate its Charter and By-Laws. Upon such amendment and restatement, the authorized capital stock of the Company will consist of shares of Class A Common Stock, shares of Class B Common Stock, and shares of preferred stock, par value $.001 per share, issuable in series (the "Preferred Stock"). In connection with such amendment and restatement of the Charter, the Company will effect the Recapitalization pursuant to which each outstanding share of Old Common Stock and Old Class A Common Stock outstanding immediately prior to the Recapitalization will be converted into shares of Class A Common Stock, and certain of the shares of Class A Common Stock held by the Morgan Stanley Stockholders will be converted into Class B Common Stock. The Morgan Stanley Stockholders have informed the Company that following the consummation of the Offering they intend to convert such number of their shares of Class B Common Stock into Class A Common Stock so that, following such conversion, the Morgan Stanley Stockholders will own, in the aggregate, 49% of the outstanding Class A Common Stock. The following summary does not purport to be complete and is subject to the detailed provisions of, and qualified in its entirety by reference to, the Charter and By-Laws of the Company, forms of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part, and to the applicable provisions of the DGCL. COMMON STOCK After giving effect to the Offering and the Morgan Stanley Stockholders' intended conversion of shares of Class B Common Stock into Class A Common Stock such that, following such conversion, the Morgan Stanley Stockholders will own, in the aggregate, 49% of the outstanding voting Common Stock of the Company, the Company will have shares of Class A Common Stock and shares of Class B Common Stock outstanding, assuming no outstanding options are exercised. Class A Common Stock. Holders of Class A Common Stock are entitled to one vote for each share of Class A Common Stock on each matter submitted to a vote of stockholders, including the election of directors. See "Certain Relationships and Related Transactions -- Stockholders Agreement." Holders of Class A Common Stock are not entitled to cumulative voting. Shares of Class A Common Stock have no preemptive or other subscription rights and are convertible by the Morgan Stanley Stockholders and certain related persons into an equal number of shares of Class B Common Stock. Shares of Class A Common Stock held by the Morgan Stanley Stockholders and certain related persons will be converted automatically into shares of Class B Common Stock, pro rata in proportion to the number of shares of Class A Common Stock held by all Morgan Stanley Stockholders and such related persons, to the extent necessary so that the Morgan Stanley Stockholders and such related persons do not own more than 49% of the outstanding shares of Class A Common Stock. Class B Common Stock. Under the Charter, Class B Common Stock may be held only by Morgan Stanley Stockholders and certain related persons. Holders of Class B Common Stock have no right to vote on matters submitted to a vote of stockholders, except (i) as otherwise required by law and (ii) that the holders of Class B Common Stock shall have the right to vote as a class on any amendment, repeal or modification to the Charter that adversely affects the powers, preferences or special rights of the holders of the Class B Common Stock. Shares of Class B Common Stock have no preemptive or other subscription rights and are convertible into an equal number of shares of Class A Common Stock (x) at the option of the holder thereof to the extent that, following such conversion, the Morgan Stanley Stockholders and certain related persons will 53 56 not, in the aggregate, own more than 49% of the outstanding shares of Class A Common Stock and (y) automatically upon the transfer of such shares by any Morgan Stanley Stockholder or related person to a person that is not a Morgan Stanley Stockholder or a related person. Dividends. All holders of Common Stock are entitled to receive such dividends or other distributions, if any, as may be declared from time to time by the Board of Directors in its discretion out of funds legally available therefor, subject to the prior rights of any Preferred Stock then outstanding, and to share equally, share for share, in such dividends or other distributions as if all shares of Common Stock were a single class. Dividends or other distributions declared or paid in shares of Common Stock, or options, warrants or rights to acquire such stock or securities convertible into or exchangeable for shares of such stock, are payable to all of the holders of Common Stock ratably according to the number of shares held by them, in shares of Class A Common Stock to holders of that class of stock and in shares of Class B Common Stock to holders of that class of stock. Delaware law generally requires that dividends be paid only out of the Company's surplus or current net profits in accordance with the DGCL. See "Dividend Policy." Liquidation. Subject to the rights of any holders of Preferred Stock outstanding, upon the dissolution, liquidation or winding up of the Company, the holders of Common Stock are entitled to share equally and ratably in the assets available for distribution after payments are made to the Company's creditors. Other. Holders of Common Stock have no preemptive, subscription or redemption rights. The outstanding shares of Common Stock are, and the shares of Class A Common Stock offered by the Company hereby will be, when issued and paid for, fully paid and nonassessable. PREFERRED STOCK The Company's Charter provides that the Board of Directors is authorized, subject to certain limitations prescribed by law, without further stockholder approval, to issue from time to time up to an aggregate of shares of Preferred Stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series thereof, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock which the Company may designate and issue in the future. The Company has no present plans to issue any shares of Preferred Stock. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS The provisions of the Company's Charter, By-Laws and Delaware statutory law described in this section may delay or make more difficult acquisitions or changes in control of the Company that are not approved by the Board of Directors. See "Risk Factors -- Possible Anti-takeover Effect of Certain Charter, By-law and Statutory Provisions." The Company is subject to the provisions of Section 203 of the DGCL. Subject to certain exceptions, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the interested stockholder attained such status with the approval of the Board of Directors or unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's voting stock. The Charter provides for the division of the Board of Directors into three classes as nearly equal in size as possible with staggered three-year terms. See "Management." Except as may be provided in any class or series 54 57 of Preferred Stock with respect to any directors elected by the holders of such class or series, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of all of the shares of capital stock of the corporation then entitled to vote generally in the election of directors, voting together as a single class. The Company's Charter provides that special meetings of the stockholders may be called at any time by resolution of the Board of Directors, the Chairman of the Board, or the Chief Executive Officer, but may not be called by other persons. The Charter also provides that any stockholder action may not be taken by written consent of stockholders without a meeting, unless the action to be effected by written consent of stockholders and the taking of such action by written consent have been approved in advance by the Board of Directors. The Charter further provides that stockholders may make, alter, amend, add to or repeal the By-laws only if, in addition to any vote of the holders of any class or series of capital stock of the Corporation required by law or the Charter, such action is approved by the affirmative vote of the holders of at least 80% of the voting power of all of the then outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class. The affirmative approval of at least 80% of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, is also required to reduce or eliminate the number of authorized shares of any capital stock set forth in the Charter or to amend, repeal or adopt any provision inconsistent with specified provisions of the Charter. As permitted by DGCL, the Charter provides that directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director by reason of any act or omission, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, (iv) for any transaction from which the director shall derive an improper personal benefit or (v) to any extent that such liability shall not be limited or eliminated by virtue of the provisions of Section 102(b)(7) of the DGCL or any successor thereof. In addition, the Charter provides that the Company shall, to the fullest extent authorized by the DGCL, as amended from time to time, indemnify and hold harmless all directors and officers against all expense, liability and loss reasonably incurred or suffered by such indemnitee in connection therewith. Such indemnification shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators. The right to indemnification includes the right to be advanced funds from the Company for expenses incurred in defending any proceeding for which a right to indemnification is applicable. STOCKHOLDERS AGREEMENT The amended Stockholders Agreement will provide that so long as the total number of shares of Common Stock of the Company owned by the Morgan Stanley Stockholders constitutes at least 35% of the outstanding Common Stock and there are seven directors on the Board, the Morgan Stanley Stockholders will have the right to designate three members to the Board of Directors. In addition, the Morgan Stanley Stockholders will have the right to designate two nominees for election to the Board of Directors for so long as they own between 25% and 35% of the outstanding Common Stock and one nominee for election to the Board for so long as they own between 5% and 25% of the outstanding Common Stock. The number of directors designated by the Morgan Stanley Stockholders will increase proportionately if the size of the Board of Directors is increased in the future. In addition, the amended Stockholders Agreement will state that so long as the Morgan Stanley Stockholders own at least 25% of the outstanding shares of Common Stock, certain significant corporate actions will be subject to their approval in addition to that of the Company's Board of Directors. See "Certain Relationships and Related Transactions -- Stockholders Agreement." LISTING Application has been made to have the Class A Common Stock listed on the New York Stock Exchange. 55 58 TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is UMB Bank, N.A. SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, there has been no public market for the Common Stock of the Company. Sales of substantial numbers of shares of Common Stock into the public market after the Offering, or the perception that such sales could occur, could materially and adversely affect the market price of the Common Stock prevailing from time to time or could impair the Company's future ability to obtain capital through an offering of equity securities. The Company cannot predict the effect, if any, that sales of shares of Common Stock, or the availability of such shares for future sales, will have on future market prices of the Common Stock. Such sales also may make it more difficult for the Company to sell equity securities in the future at the time and price it deems appropriate. Upon consummation of the Offering, the Company will have outstanding an aggregate of shares of Common Stock assuming no exercise of the U.S. Underwriters' over-allotment option and no exercise of outstanding stock options. Of these shares, all of the shares of Common Stock sold in the Offering will be freely tradable without restriction or further registration under the Securities Act by persons other than "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act (the "Affiliates"). The remaining shares of Common Stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act (the "Restricted Shares"). These Restricted Shares were acquired in transactions exempt from registration under the Securities Act and may not be resold unless they are registered under the Securities Act or are sold pursuant to an applicable exemption from registration, such as Rule 144, Rule 144(k) or Rule 701 promulgated under the Securities Act. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated in accordance with the Rule) who has beneficially owned Restricted Shares for at least one year or any person who may be deemed an affiliate of the Company is entitled, subject to certain conditions, to sell within any three-month period a number of shares of which does not exceed the greater of (i) one percent of the Company's then outstanding shares of Common Stock (approximately shares immediately after the Offering, assuming no exercise of the U.S. Underwriters' over-allotment option and no exercise of outstanding stock options) or (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain manner-of-sale and notice requirements and the availability of current public information about the Company. A person (or persons whose shares are aggregated in accordance with the Rule) who is not an "affiliate" of the Company at any time during the 90 days preceding a sale and who beneficially owns shares that were not acquired from the Company or an affiliate of the Company within the past two years is entitled to sell such shares under Rule 144(k) without regard to volume limitations, manner of sale provisions, notice requirements or the availability of current public information on the Company. In general, under Rule 701 as currently in effect, any employee, consultant or advisor of the Company who purchased shares from the Company in connection with a compensatory stock or option plan or other written agreement is eligible to resell such shares 90 days after the effective date of this Offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144. The Commission has proposed an amendment to Rule 144 which may further liberalize the provisions of Rule 144. Beginning 90 days after the date of this Prospectus, of the Restricted Shares will be eligible for sale on the public market under Rule 144, provided the conditions of that rule have been met. A total of of the Restricted Shares are subject to lock-up agreements with the Underwriters that prohibit their sale or other disposition for 180 days from the date of this Prospectus without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters (except with respect to shares of Common Stock held by the Morgan Stanley Stockholders, for which prior written consent of all the U.S. Representatives is required). Of these Restricted Shares, shares will become eligible for sale under Rule 144 after expiration of the 180-day period. 56 59 Pursuant to the Stockholders Agreement, the Company has granted the Existing Stockholders certain "demand" registration rights with respect to the shares of Common Stock held by the Existing Stockholders. In addition to such demand rights, the Existing Stockholders will be entitled, subject to certain limitations, to register shares of Common Stock in connection with a registration statement prepared by the Company. See "Certain Relationships and Related Transactions -- Stockholders Agreement." Each of the Existing Stockholders has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters (except with respect to shares of Common Stock held by the Morgan Stanley Stockholders, without the prior written consent of all the U.S. Representatives), it will not, during the period ending 180 days after the date of this Prospectus, make any demand for, or exercise any right with respect to, the registration of any shares of Class A Common Stock or any security convertible into or exercisable or exchangeable for Class A Common Stock. Existing Stockholders other than the Morgan Stanley Stockholders may not sell or pledge any shares of Common Stock except in the circumstances permitted by the Stockholders Agreement. See "Certain Relationships and Related Transactions." Subject to the lock-up period describe above, the Morgan Stanley Stockholders may choose to dispose of the Common Stock owned by them. The timing of such sales or other dispositions by such stockholders (which could include distributions to the Morgan Stanley Stockholders' limited partners) will depend on market and other conditions, but could occur relatively soon after the lock-up period, including pursuant to the exercise of their registration rights. The Morgan Stanley Stockholders are unable to predict the timing of sales by any of their limited partners in the event of a distribution to them. Such dispositions could be privately negotiated transactions or public sales. 57 60 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS The following is a general discussion of certain United States federal income and estate tax consequences of the ownership and disposition of Class A Common Stock applicable to "Non-United States Holders." A "Non-United States Holder" is any beneficial owner of Class A Common Stock that, for United States federal income or estate tax purposes, as the case may be, is a non-resident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust as such terms are defined in the Internal Revenue Code of 1986, as amended (the "Code"). This discussion is based on the Code and administrative and judicial interpretations as of the date hereof, all of which are subject to change either retroactively or prospectively. This discussion does not address all aspects of United States federal income and estate taxation that may be relevant to Non-United States Holders in light of their particular circumstances (such as certain tax consequences applicable to United States expatriates and pass-through entities) and does not address any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction or the application of a particular tax treaty. Prospective investors are urged to consult their tax advisors regarding the United States federal, state and local income and other tax consequences, and the non-United States tax consequences, of owning and disposing of Class A Common Stock. Proposed United States Treasury Regulations were issued on April 15, 1996 (the "Proposed Regulations") which, if adopted in their present form, could revise in certain respects the rules applicable to Non-United States Holders of Class A Common Stock. The Proposed Regulations are generally proposed to be effective with respect to payments made after December 31, 1997, subject to certain transition rules. It cannot be predicted at this time whether the Proposed Regulations will be adopted as proposed or what modifications, if any, may be made to them. The discussion below is not intended to include a complete discussion of the provisions of the Proposed Regulations, and prospective investors are urged to consult their tax advisors with respect to the effect the Proposed Regulations may have if adopted. DIVIDENDS Subject to the discussion below, any dividend paid to a Non-United States Holder generally will be subject to United States withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. For purposes of determining whether tax is to be withheld at a 30% rate or at a reduced rate as specified by an applicable tax treaty, under current United States Treasury Regulations the Company ordinarily will presume that dividends paid to a holder with an address in a foreign country are paid to a resident of such country absent knowledge that such presumption is not warranted. Under such Regulations, dividends paid to a holder with an address within the United States generally will be presumed to be paid to a holder who is not a Non-United States Holder and will not be subject to the 30% withholding tax, unless the Company has actual knowledge that the holder is a Non-United States Holder. The Proposed Regulations would provide for certain presumptions (which differ from those described above) upon which the Company may generally rely to determine whether, in the absence of certain documentation, a holder should be treated as a Non-United States Holder for purposes of the 30% withholding tax described above. The presumptions would not apply for purposes of granting a reduced rate of withholding under a treaty. Under the Proposed Regulations, to obtain a reduced rate of withholding under a treaty a Non-United States Holder would be required either (i) to provide an Internal Revenue Service Form W-8 certifying such Non-United States Holder's entitlement to benefits under a treaty together with, in certain circumstances, additional information or (ii) satisfy certain other applicable certification requirements. The Proposed Regulations also would provide special rules to determine whether, for purposes of determining the applicability of a tax treaty and for purposes of the 30% withholding tax described above, dividends paid to a Non-United States Holder that is an entity should be treated as paid to the entity or those holding an interest in that entity. Dividends received by a Non-United States Holder that are effectively connected with a United States trade or business conducted by such Non-United States Holder are exempt from withholding tax. However, 58 61 such effectively connected dividends are subject to regular United States income tax in the same manner as if the Non-United States Holder were a United States person for federal income tax purposes. Effectively connected dividends may be subject to a different treatment under an applicable tax treaty depending on whether such dividends are attributable to a permanent establishment of the Non-United States Holder in the United States. A Non-United States Holder may claim exemption from withholding under the effectively connected income exception by filing Internal Revenue Service Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected With the Conduct of a Trade or Business in the United States) each year with the Company or its paying agent prior to the payment of the dividends for such year. The Proposed Regulations would replace Form 4224 with Form W-8 and certain additional information. Effectively connected dividends received by a corporate Non-United States Holder may be subject to an additional "branch profits tax" at a rate of 30% (or such lower rate as may be specified by an applicable tax treaty) of such corporate Non-United States Holder's effectively connected earnings and profits, subject to certain adjustments. A Non-United States Holder eligible for a reduced rate of United States withholding tax pursuant to a tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the United States Internal Revenue Service ("IRS"). GAIN ON DISPOSITION OF CLASS A COMMON STOCK A Non-United States Holder generally will not be subject to United States federal income tax with respect to gain realized upon the sale or other disposition of Class A Common Stock unless (i) such gain is effectively connected with a United States trade or business of the Non-United States Holder; (ii) the Non-United States Holder is a non-resident alien individual who holds the Class A Common Stock as a capital asset, is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which such sale or disposition occurs, and either the non-resident alien individual has a "tax home" in the United States or the sale is attributable to an office or other fixed place of business maintained by the non-resident alien individual in the United States; or (iii) the Company is or has been a "United States real property holding corporation" for federal income tax purposes at any time within the shorter of the five-year period ending on the date of the disposition or such holder's holding period (the "determination period"). The Company has determined that it is not, and does not anticipate becoming a "United States real property holding corporation" for federal income tax purposes. Even if the Company is a United States real property holding corporation for federal income tax purposes at any time during the determination period, the disposition of Class A Common Stock by a Non-United States Holder that did not own more than five percent of the Class A Common Stock during the determination period will not be treated as a disposition of an interest in a United States real property holding corporation if the Class A Common Stock is treated as "regularly traded on an established securities market" during the calendar year. Non-United States Holders should consult applicable tax treaties, which might result in a United States federal income tax treatment on the sale or other disposition of Class A Common Stock different than as described above. BACKUP WITHHOLDING AND INFORMATION REPORTING Generally, the Company must report to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. The information reporting requirements apply regardless of whether withholding was reduced by an applicable tax treaty or if withholding was not required because the dividends were effectively connected with a trade or business in the United States of the Non-United States Holder. A similar report is sent to the holder. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence. Under current United States Treasury Regulations, unless the Company has actual knowledge that a holder is a Non-United States Holder, dividends paid to a holder at an address within the United States may be subject to backup withholding at a rate of 31% and additional information reporting if the holder is not an "exempt recipient" as defined in Treasury Regulations (which includes corporations) and fails to provide a correct taxpayer identification number and other information to the Company. Backup withholding and such additional information reporting will generally not apply to dividends paid to holders at an address outside the 59 62 United States (unless the Company has knowledge that the holder is a United States person) or to dividends paid to Non-United States Holders that are either subject to the United States withholding tax (whether at 30% or a reduced rate) or that are exempt from such withholding because such dividends constitute effectively connected income. Under current United States Treasury Regulations, proceeds from the disposition of Class A Common Stock by a Non-United States Holder effected by or through a United States office of a broker will be subject to information reporting and to backup withholding at a rate of 31% of the gross proceeds unless such Non-United States Holder certifies under penalties of perjury as to its name, address and status as a Non-United States Holder or otherwise establishes an exemption. Generally, United States information reporting and backup withholding will not apply to a payment of disposition proceeds if the transaction is effected outside the United States by or through a non-United States office of a broker. However, United States information reporting requirements (but not backup withholding) will apply to a payment of disposition proceeds where the transaction is effected outside the United States if (a) the disposition is made through an office outside the United States of a broker that is either (i) a United States person for United States federal income tax purposes, (ii) a "controlled foreign corporation" for United States federal income tax purposes or (iii) a foreign person which derives 50% or more of its gross income for certain periods from the conduct of a United States trade or business and (b) the broker fails to maintain documentary evidence in its files that the holder is a Non-United States Holder and that certain conditions are met or that the holder otherwise is entitled to an exemption. The Proposed Regulations would, if adopted, alter the foregoing rules applicable to proceeds from Class A Common Stock in certain respects. Among other things, the Proposed Regulations would provide certain presumptions and other rules under which Non-United States Holders may be subject to backup withholding and related information reporting in the absence of required certifications. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of United States income taxes, a refund may be obtained, provided that the required documents are filed with the IRS. ESTATE TAX An individual Non-United States Holder who is treated as the owner of Class A Common Stock at the time of such individual's death or has made certain lifetime transfers of an interest in Class A Common Stock will be required to include the value of such Class A Common Stock in such individual's gross estate for United States federal estate tax purposes and may be subject to United States federal estate tax, unless an applicable tax treaty provides otherwise. 60 63 UNDERWRITERS Under the terms and subject to the conditions in the Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters named below for whom Morgan Stanley & Co. Incorporated, Alex. Brown & Sons Incorporated, Goldman, Sachs & Co. and George K. Baum & Company are acting as U.S. Representatives, and the International Underwriters named below for whom Morgan Stanley & Co. International Limited, Alex. Brown & Sons Incorporated, Goldman Sachs International and George K. Baum & Company are acting as International Representatives, have severally agreed to purchase, and the Company has agreed to sell to them, severally, the respective numbers of shares of Class A Common Stock set forth opposite the names of such Underwriters below:
NUMBER OF NAME SHARES ---- --------- U.S. Underwriters: Morgan Stanley & Co. Incorporated......................... Alex. Brown & Sons Incorporated........................... Goldman, Sachs & Co. ..................................... George K. Baum & Company.................................. ---------- Subtotal............................................... ---------- International Underwriters: Morgan Stanley & Co. International Limited................ Alex. Brown & Sons Incorporated........................... Goldman Sachs International............................... George K. Baum & Company.................................. ---------- Subtotal............................................... ---------- Total.................................................. ==========
The U.S. Underwriters and the International Underwriters, and the U.S. Representatives and the International Representatives, are collectively referred to as the "Underwriters" and the "Representatives," respectively. The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Class A Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Class A Common Stock offered hereby (other than those covered by the U.S. Underwriters' over-allotment option described below) if any such shares are taken. Pursuant to the Agreement between U.S. and International Underwriters, each U.S. Underwriter has represented and agreed that, with certain exceptions: (i) it is not purchasing any Shares (as defined herein) for the account of anyone other than a United States or Canadian Person (as defined herein) and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any Shares or distribute any prospectus relating to the Shares outside the United States or Canada or to anyone other than a United States or Canadian Person. Pursuant to the Agreement between U.S. and International Underwriters, each International Underwriter has represented and agreed that, with certain exceptions: (i) it is not purchasing any Shares for the account of any United States or Canadian Person and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any Shares or distribute any prospectus relating to the Shares in the United States or Canada or to any United States or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and an International Underwriter, the foregoing representations and agreements (i) made by it in its capacity as a U.S. Underwriter apply only to it in its capacity as a U.S. Underwriter and (ii) made by it in its capacity as an International Underwriter apply only to it in its capacity as an International Underwriter. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement between U.S. and International Underwriters. As used herein, "United States or Canadian Person" means any national or resident of the United States or Canada, or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any 61 64 political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person), and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. All shares of Class A Common Stock to be purchased by the Underwriters under the Underwriting Agreement are referred to herein as the "Shares". Pursuant to the Agreement between U.S. and International Underwriters, sales may be made between the U.S. Underwriters and International Underwriters of any number of Shares as may be mutually agreed. The per share price of any Shares so sold shall be the public offering price set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below. Pursuant to the Agreement between U.S. and International Underwriters, each U.S. Underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any Shares, directly or indirectly, in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and has represented that any offer or sale of Shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made. Each U.S. Underwriter has further agreed to send to any dealer who purchases from it any of the Shares a notice stating in substance that, by purchasing such Shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such Shares in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and that any offer or sale of Shares in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made, and that such dealer will deliver to any other dealer to whom it sells any of such Shares a notice containing substantially the same statement as is contained in this sentence. Pursuant to the Agreement between U.S. and International Underwriters, each International Underwriter has represented and agreed that (i) it has not offered or sold and, prior to the date six months after the closing date for the sale of the Shares to the International Underwriters, will not offer or sell, any Shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Shares in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the offering of the Shares to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. Pursuant to the Agreement between U.S. and International Underwriters, each International Underwriter has further represented that it has not offered or sold, and has agreed not to offer or sell, directly or indirectly, in Japan or to or for the account of any resident thereof, any of the Shares acquired in connection with the distribution contemplated hereby, except for offers or sales to Japanese International Underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law. Each International Underwriter has further agreed to send to any dealer who purchases from it any of the Shares a notice stating in substance that, by purchasing such Shares, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, any of such Shares, directly or indirectly, in Japan or to or for the account of any resident thereof except for offers or sales to Japanese International Underwriters or dealers and except pursuant to any exemption from the registration requirements of the Securities and Exchange Law and otherwise in compliance with applicable provisions of Japanese law, and that such dealer will send to any other dealer to whom it sells any of such Shares a notice containing substantially the same statement as is contained in this sentence. 62 65 The Underwriters initially propose to offer part of the shares of Class A Common Stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any Underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other Underwriters or to certain other dealers. After the initial offering of the shares of Class A Common Stock, the offering price and other selling terms may from time to time be varied by the Representatives. The Company and the Selling Stockholder have granted to the U.S. Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an aggregate of additional shares of Class A Common Stock at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The U.S. Underwriters may exercise such option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Class A Common Stock offered hereby. To the extent such option is exercised, each U.S. Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Class A Common Stock as the number set forth next to such U.S. Underwriter's name in the preceding table bears to the total number of shares of Class A Common Stock set forth next to the names of all U.S. Underwriters in the preceding table. The Underwriters have informed the Company that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of Class A Common Stock offered by them. Each of the Company and the directors, executive officers and certain other stockholders of the Company has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters (except with respect to shares of Common Stock held by the Morgan Stanley Stockholders, for which prior written consent of all the U.S. Representatives is required), it will not, during the period ending 180 days after the date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Class A Common Stock or any securities convertible into or exercisable or exchangeable for Class A Common Stock (provided that such shares or securities are either owned on the date of this Prospectus or are hereinafter acquired prior to the Offering) or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Class A Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Class A Common Stock or such other securities, in cash or otherwise. The restrictions described in this paragraph do not apply to (x) the sale of the Shares to the Underwriters, (y) the issuance by the Company of shares of Common Stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this Prospectus or (z) transactions by any person other than the Company relating to shares of Class A Common Stock or other securities acquired in open market transactions after the consummation of the offering of the Shares. In order to facilitate the offering of the Class A Common Stock, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Class A Common Stock. Specifically, the Underwriters may over-allot in connection with the Offering, creating a short position in the Class A Common Stock for their own account. In addition, to cover over-allotments or to stabilize the price of the Class A Common Stock, the Underwriters may bid for, and purchase, shares of Class A Common Stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an Underwriter or a dealer for distributing the Class A Common Stock in the Offering, if the syndicate repurchases previously distributed Class A Common Stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Class A Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. The Company, the Selling Stockholder and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Upon consummation of the Offering, affiliates of Morgan Stanley & Co. Incorporated and Morgan Stanley & Co. International Limited will own % of the Common Stock ( % if the Underwriters' 63 66 over-allotment option is exercised in full). No affiliates of Morgan Stanley & Co. Incorporated and Morgan Stanley & Co. International Limited will be selling shares of Class A Common Stock in the Offering. Currently, affiliates of Morgan Stanley & Co. Incorporated and Morgan Stanley & Co. International Limited have designated three members to the Board of Directors (Messrs. Niehaus and Sorrel and Ms. Rosen). Messrs. Niehaus and Sorrel and Ms. Rosen are employees of Morgan Stanley & Co. Incorporated. See "Management." From time to time, Morgan Stanley & Co. Incorporated and its affiliates have provided, and continue to provide, investment banking and financial advisory services to the Company for which they have received customary fees and commissions. Morgan Stanley Senior Funding, Inc., an affiliate of Morgan Stanley & Co. Incorporated, one of the U.S. Underwriters, is the documentation agent under the agreements relating to the Company's Credit facility, and acted as arranger for the Credit Facility for which it received a customary fee. Morgan Stanley Senior Funding, Inc. also provides other general financing and banking services to the Company and its affiliates from time to time. Application has been made to list the Class A Common Stock on the New York Stock Exchange under the symbol "PLB." Prior to the Offering, there has been no public market for the Class A Common Stock. The initial public offering price will be determined by negotiations between the Company and the U.S. Representatives. Among the factors to be considered in determining the initial public offering price will be the future prospects of the Company and its industry in general, sales, earnings and certain other financial and operating information of the Company in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. The estimated initial public offering price range set forth on the cover page of this Preliminary Prospectus is subject to change as a result of market conditions and other factors. Because the partial repayment of the Credit Facility will cause a substantial portion of the proceeds from the Offering to be paid to affiliates of members of the National Association of Securities Dealers, Inc. ("NASD") which members may participate in the U.S. Offering, the U.S. Offering is being conducted in accordance with the requirements of Rule 2710(c)(8) of the NASD Conduct Rules. The initial public offering price can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. Accordingly, Goldman, Sachs & Co. will serve in such role and will receive compensation from the Company in the amount of $ for serving in such capacity. In connection with the U.S. Offering, Goldman, Sachs & Co. in its role as qualified independent underwriter has performed due diligence investigations and reviewed and participated in the preparation of this Prospectus and the Registration Statement of which this Prospectus forms a part. From time to time, George K. Baum & Company has provided, and continues to provide, investment banking and financial advisory services to the Company for which it has received customary fees and commissions. Upon consummation of the Offering, one of the Company's seven directors will be a director of George K. Baum & Company. LEGAL MATTERS The validity of the shares of Class A Common Stock offered hereby and certain other matters will be passed upon for the Company by Sonnenschein Nath & Rosenthal, Kansas City, Missouri. Certain legal matters will be passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York. Davis Polk & Wardwell has performed, and will continue to perform, legal services for the Morgan Stanley Stockholders and has acted as counsel to the Morgan Stanley Stockholders in connection with their investments in the Company. 64 67 EXPERTS The financial statements of the Company at December 31, 1995, September 30, 1996, and June 30, 1997, and for each of the two years in the period ended December 31, 1995, for the nine-month fiscal period ended September 30, 1996 and the nine-month period ended June 30, 1997 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed a Registration Statement with the Securities and Exchange Commission (the "Commission") on Form S-1 under the Securities Act with respect to the shares of Class A Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in schedules and exhibits to the Registration Statement as permitted by rules of the Commission. For further information with respect to the Company and the Class A Common Stock offered hereby, reference is made to such Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete. With respect to each such contract or other document filed as a part of or otherwise incorporated in the Registration Statement, reference is made to the exhibit for a more complete description of the matters involved, and each such statement shall be deemed qualified in its entirety by such reference. Following the consummation of this Offering, the Company will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith will file reports, proxy statements and other information with the Commission. The Registration Statement, including the schedules and exhibits thereto, as well as such reports, proxy statements and other information filed by the Company can be inspected, without charge, and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices maintained by the Commission at Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can also be obtained from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, registration statements and certain other filings made with the Commission through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly available through the Commission's site on the Internet's World Wide Web, located at http://www.sec.gov. The Registration Statement, including all exhibits thereto and amendments thereof, has been filed with the Commission through EDGAR. Following the consummation of this Offering, the Company intends to furnish to its stockholders annual reports containing financial statements audited by an independent certified public accounting firm and quarterly reports for each of the first three quarters of each fiscal year containing unaudited financial information. 65 68 AMERICAN ITALIAN PASTA COMPANY INDEX TO AUDITED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors.............................. F-2 Balance Sheets at December 31, 1995, September 30, 1996 and June 30, 1997............................................. F-3 Statements of Operations for the years ended December 31, 1994 and 1995, the fiscal nine-months ended September 30, 1996 and the nine-months ended June 30, 1997.............. F-4 Statements of Stockholders' Equity for the years ended December 31, 1994 and 1995, the fiscal nine-months ended September 30, 1996 and the nine-months ended June 30, 1997...................................................... F-5 Statements of Cash Flows for the years ended December 31, 1994 and 1995, the fiscal nine-months ended September 30, 1996 and the nine-months ended June 30, 1997.............. F-6 Notes to Financial Statements............................... F-7
F-1 69 REPORT OF INDEPENDENT AUDITORS The Board of Directors American Italian Pasta Company We have audited the accompanying balance sheets of American Italian Pasta Company (the Company) as of December 31, 1995, September 30, 1996 and June 30, 1997, and the related statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1995, the nine- month fiscal period ended September 30, 1996 and the nine-month period ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Italian Pasta Company at December 31, 1995, September 30, 1996 and June 30, 1997, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1995, the nine-month fiscal period ended September 30, 1996 and the nine-month period ended June 30, 1997 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Kansas City, Missouri July 25, 1997 except Note 12, as to which the date is , 1997 - -------------------------------------------------------------------------------- The foregoing report is in the form that will be signed upon the completion of the recapitalization and restatement of capital accounts and the calculation of earnings per share amounts as described in Note 12 to the financial statements. /s/ ERNST & YOUNG LLP Kansas City, Missouri August 4, 1997 F-2 70 AMERICAN ITALIAN PASTA COMPANY BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, JUNE 30, 1995 1996 1997 ------------ ------------- -------- (IN THOUSANDS) ASSETS (Note 2) Current assets: Cash and temporary investments.......................... $ 18 $ 1,818 $ 2,612 Trade and other receivables............................. 10,709 12,494 11,616 Prepaid expenses and deposits........................... 927 1,879 2,201 Inventory............................................... 12,544 14,374 11,619 Deferred income taxes (Note 3).......................... 339 269 213 -------- -------- -------- Total current assets...................................... 24,537 30,834 28,261 Property, plant and equipment: Land and improvements................................... 4,379 4,413 4,540 Buildings............................................... 37,382 37,491 37,491 Plant and mill equipment................................ 78,850 81,461 83,702 Furniture, fixtures and equipment....................... 3,348 3,635 4,477 -------- -------- -------- 123,959 127,000 130,210 Accumulated depreciation................................ (18,580) (23,247) (27,790) -------- -------- -------- 105,379 103,753 102,420 Construction in progress................................ -- -- 7,839 -------- -------- -------- Total property, plant and equipment....................... 105,379 103,753 110,259 Deferred income taxes (Note 3)............................ 1,821 3,579 2,334 Other assets.............................................. 3,687 4,991 5,256 -------- -------- -------- Total assets.............................................. $135,424 $143,157 $146,110 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable........................................ $ 12,102 $ 7,193 $ 6,550 Accrued expenses........................................ 2,694 3,664 4,750 Current maturities of long-term debt (Note 2)........... 3,109 8,078 3,685 Revolving line of credit facility (Note 2).............. -- 13,500 -- -------- -------- -------- Total current liabilities................................. 17,905 32,435 14,985 Long-term debt (Note 2)................................... 97,452 93,284 89,500 Commitments and contingencies (Note 4) Stockholders' equity: Common stock, no par value: Authorized shares 2,100,000.......................... -- -- -- Class A common stock, $.01 par value: Authorized shares -- 1,600,000....................... 10 10 15 Additional paid-in capital.............................. 32,969 33,069 55,320 Notes receivable from officers.......................... -- -- (298) Accumulated deficit..................................... (12,912) (15,641) (13,412) -------- -------- -------- Total stockholders' equity................................ 20,067 17,438 41,625 -------- -------- -------- Total liabilities and stockholders' equity................ $135,424 $143,157 $146,110 ======== ======== ========
See accompanying notes to financial statements. F-3 71 AMERICAN ITALIAN PASTA COMPANY STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEAR ENDED ---------------------------------------------------- DECEMBER 31, SEPTEMBER 30, JUNE 30, ---------------------- -------------------------- ---------------------- 1994 1995 1995 1996 1996 1997 ---- ---- ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues (Note 5)................. $69,465 $92,903 $63,828 $92,074 $86,514 $93,616 Cost of goods sold................ 54,393 73,851 51,601 68,555 65,697 67,821 Plant expansion costs (Note 8).... 484 2,065 1,640 -- 425 -- ------- ------- ------- ------- ------- ------- Gross profit...................... 14,588 16,987 10,587 23,519 20,392 25,795 Selling and marketing expense..... 3,792 5,303 3,656 8,676 6,625 8,078 Product introduction costs (Note 10)............................. -- -- -- 5,753 3,150 3,458 General and administrative expense......................... 1,951 2,930 2,048 2,805 2,741 2,855 ------- ------- ------- ------- ------- ------- Operating profit.................. 8,845 8,754 4,883 6,285 7,876 11,404 Interest expense, net............. 4,975 8,008 5,261 8,023 8,030 7,800 ------- ------- ------- ------- ------- ------- Income (loss) before income tax expense (benefit) and extraordinary item.............. 3,870 746 (378) (1,738) (154) 3,604 Income tax expense (benefit) (Note 3).............................. 1,484 270 (147) (656) (87) 1,375 ------- ------- ------- ------- ------- ------- Income (loss) before extraordinary item............................ 2,386 476 (231) (1,082) (67) 2,229 Extraordinary item: Loss due to early extinguishment of long-term debt, net of income taxes (Note 2)........ (204) -- -- (1,647) (1,647) -- ------- ------- ------- ------- ------- ------- Net income (loss)................. $ 2,182 $ 476 $ (231) $(2,729) $(1,714) $ 2,229 ======= ======= ======= ======= ======= ======= Net income (loss) per common share: Before extraordinary item......... $ $ $ $ Extraordinary item................ ------- ------- ------- ------- Total............................. $ $ $ $ ======= ======= ======= ======= Weighted-average common shares outstanding..................... ======= ======= ======= =======
See accompanying notes to financial statements. F-4 72 AMERICAN ITALIAN PASTA COMPANY STATEMENTS OF STOCKHOLDERS' EQUITY
NOTES CLASS A CLASS A ADDITIONAL RECEIVABLE TOTAL COMMON COMMON COMMON PAID-IN FROM DEFERRED ACCUMULATED STOCKHOLDERS' SHARES SHARES STOCK CAPITAL OFFICERS COMPENSATION DEFICIT EQUITY ------ ------- ------- ---------- ---------- ------------ ----------- ------------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance at December 31, 1993.................. 301,221 1,032,728 $10 $32,677 $ -- $(144) $(15,570) $16,973 Compensation related to stock options vesting in 1994..... -- -- -- -- -- 144 -- 144 Issuance of 3,490 shares of no par Common stock........ 3,490 -- -- 102 -- -- -- 102 Net income............ -- -- -- -- -- -- 2,182 2,182 ------- --------- --- ------- ----- ----- -------- ------- Balance at December 31, 1994.................. 304,711 1,032,728 10 32,779 -- -- (13,388) 19,401 Issuance of 3,008 shares of no par Common stock and 3,314 shares of Class A Common stock............... 3,008 3,314 -- 190 -- -- -- 190 Net income............ -- -- -- -- -- -- 476 476 ------- --------- --- ------- ----- ----- -------- ------- Balance at December 31, 1995.................. 307,719 1,036,042 10 32,969 -- -- (12,912) 20,067 Issuance of 3,315 shares of no par Common stock........ 3,315 -- -- 100 -- -- -- 100 Net loss.............. -- -- -- -- -- -- (2,729) (2,729) Balance at September 30, ------- --------- --- ------- ----- ----- -------- ------- 1996.................. 311,034 1,036,042 10 33,069 -- -- (15,641) 17,438 Issuance of 517,695 shares of Class A Common stock, net of issuance costs...... -- 517,695 5 22,037 -- -- -- 22,042 Notes received from officers in exchange for stock........... -- -- -- -- (298) -- -- (298) Issuance of 5,088 shares of Class A Common stock to employee benefit plan................ -- 5,088 -- 214 -- -- -- 214 Net income............ -- -- -- -- -- -- 2,229 2,229 ------- --------- --- ------- ----- ----- -------- ------- Balance at June 30, 1997.................. 311,034 1,558,825 $15 $55,320 $(298) $ -- $(13,412) $41,625 ======= ========= === ======= ===== ===== ======== =======
See accompanying notes to financial statements. F-5 73 AMERICAN ITALIAN PASTA COMPANY STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED -------------------------------------------------- DECEMBER 31 SEPTEMBER 30 JUNE 30 -------------------- ----------------------- ----------------------- 1994 1995 1995 1996 1996 1997 ---- ---- ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) (IN THOUSANDS) Operating activities: Net income (loss).................... $ 2,182 $ 476 $ (231) $ (2,729) $ (1,714) $ 2,229 Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: Depreciation and amortization.... 4,573 6,279 4,485 6,441 5,916 8,460 Deferred income tax expense (benefit)..................... 1,168 264 (147) (656) (87) 1,375 Extraordinary loss due to early extinguishment of long-term debt.......................... 204 -- -- 1,647 1,647 -- Compensation related to stock options....................... 144 -- -- -- -- -- Loss on disposal of property, plant and equipment........... -- 439 275 -- 163 -- Changes in operating assets and liabilities: Trade and other receivables... (1,900) (4,586) (1,512) (1,785) (2,898) 942 Prepaid expenses and deposits.................... (317) (364) (1,241) (952) (220) (396) Inventory..................... (4,293) (2,814) (1,889) (1,830) (5,377) 2,755 Accounts payable and accrued expenses.................... 2,167 6,610 3,435 (3,961) 519 443 Product placement fees........ -- -- (124) (3,230) (1,770) (1,352) Other......................... (238) (574) (376) (422) (334) (380) -------- -------- -------- -------- -------- -------- Net cash provided by (used in) operating activities............... 3,690 5,730 2,675 (7,477) (4,155) 14,076 Investing activities: Additions to property, plant and equipment.......................... (25,431) (38,789) (31,365) (3,041) (6,084) (11,464) -------- -------- -------- -------- -------- -------- Net cash used in investing activities......................... (25,431) (38,789) (31,365) (3,041) (6,084) (11,464) Financing activities: Additions to deferred debt issuance costs.............................. (2,004) (71) (71) (2,083) (2,064) (2,099) Proceeds from issuance of debt....... 58,330 40,795 22,274 86,470 106,025 3,543 Net borrowings under revolving line of credit facility................. -- -- 9,408 13,500 -- (13,500) Principal payments on debt and capital lease obligations.......... (36,825) (7,848) (3,875) (85,669) (92,239) (11,720) Proceeds from issuance of common stock, net of issuance costs....... 102 190 167 100 -- 21,958 -------- -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities............... 19,603 33,066 27,903 12,318 11,722 (1,818) -------- -------- -------- -------- -------- -------- Net increase (decrease) in cash and temporary investments.............. (2,138) 7 (787) 1,800 1,483 794 Cash and temporary investments at beginning of period................ 2,149 11 11 18 (776) 1,818 -------- -------- -------- -------- -------- -------- Cash and temporary investments at end of period.......................... $ 11 $ 18 $ (776) $ 1,818 $ 707 $ 2,612 ======== ======== ======== ======== ======== ========
See accompanying notes to financial statements. F-6 74 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS American Italian Pasta Company (the Company) is a Delaware Corporation which began operations in 1988. The Company is the third largest producer and marketer of pasta products in the United States with manufacturing and distribution facilities located in Excelsior Springs, Missouri and Columbia, South Carolina. CHANGE IN FISCAL YEAR Effective for its 1996 fiscal year, the Company changed its fiscal year end from December 31 to the Friday last preceding September 30, resulting in a nine-month fiscal year for 1996, a 53-week year for fiscal 1997, and a 52- or 53-week year for all subsequent fiscal years. The Company's other fiscal quarters end on the Friday last preceding December 31, March 31 and June 30 of each year. For purposes of the financial statements and notes thereto, the 1996 fiscal year is described as having ended on September 30, 1996, and the nine-month 1997 and 1996 interim periods are described as having ended on June 30. INTERIM FINANCIAL STATEMENTS The Company's balance sheet at June 30, 1997 and the statements of operations and stockholders' equity and cash flows for the nine months ended September 30, 1995, June 30, 1996 and June 30, 1997 have been prepared in accordance with generally accepted accounting principles for interim financial statements. The Company has included information for the nine months ended September 30, 1995 and June 30, 1996 in the statements of operations and statements of cash flows for comparative purposes. This information is unaudited. REVENUE RECOGNITION Revenue from product sales is recognized at the time of shipment. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RISKS AND UNCERTAINTIES The Company grants credit to certain customers who meet the Company's preestablished credit requirements. Generally, the Company does not require collateral security when trade credit is granted to customers. Credit losses are provided for in the financial statements and consistently have been within management's expectations. At December 31, 1995, September 30, 1996 and June 30, 1997, approximately 30%, 34% and 41%, respectively, of accounts receivable were due from two customers. Pasta is made from semolina milled from durum wheat, a class of hard amber wheat grown in certain parts of the world and purchased by the Company from United States and Canadian sources. The Company mills the wheat into semolina at its Excelsior Springs plant. Durum wheat is a narrowly traded, cash only commodity crop. The Company attempts to minimize the effect of durum wheat cost fluctuations through forward purchase contracts and raw material cost-based pricing agreements with many of its customers. The Company's commodity procurement and pricing practices are intended to reduce the risk of durum wheat cost F-7 75 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) increases on profitability, but also may temporarily affect the timing of the Company's ability to benefit from possible durum wheat cost decreases for such contracted quantities. FINANCIAL INSTRUMENTS The carrying value of the Company's financial instruments, including cash and temporary investments, accounts receivable, accounts payable and long-term debt, as reported in the accompanying balance sheet at June 30, 1997, approximates fair value. ADVERTISING COSTS The Company amortizes direct response advertising costs over the period in which the future benefits are expected (generally six months or less). Production costs for television advertisement are expensed upon the first showing. Other costs of advertising and promotions are expensed as incurred. CASH AND TEMPORARY INVESTMENTS Cash and temporary investments include cash on hand, amounts due from banks and highly liquid marketable securities with maturities of three months or less at the date of purchase. INVENTORIES Inventories are stated using product specific standard costs which approximate the lower of cost or market determined on a first-in, first-out (FIFO) basis. Inventories consist of the following:
DECEMBER 31, SEPTEMBER 30, JUNE 30, 1995 1996 1997 ------------ ------------- -------- (IN THOUSANDS) Finished goods............................... $ 8,625 $10,809 $ 7,505 Raw materials, packaging materials and work-in-process............................ 3,919 3,565 4,114 ------- ------- ------- $12,544 $14,374 $11,619 ======= ======= =======
PROPERTY, PLANT AND EQUIPMENT Capital additions, improvements and major renewals are classified as property, plant and equipment and are recorded at cost. Depreciation is calculated for financial statement purposes using the straight-line method over the estimated useful life of the related asset for each year as follows:
NUMBER OF YEARS --------- Land improvements........................................... 40 Buildings................................................... 30 Plant and mill equipment.................................... 20 Packaging equipment......................................... 10 Furniture, fixtures and equipment........................... 5
The Company capitalizes interest costs associated with the construction and installation of plant and equipment. During the fiscal years ended December 31, 1994 and 1995, approximately $871,000 and F-8 76 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) $1,559,000 of interest cost was capitalized, respectively. There was no interest cost capitalized in fiscal 1996. During the nine months ended June 30, 1997, approximately $136,000 of interest cost was capitalized. OTHER ASSETS Other assets consist of the following:
DECEMBER 31, SEPTEMBER 30, JUNE 30, 1995 1996 1997 ------------ ------------- -------- (IN THOUSANDS) Product placement fees..................................... $ 145 $ 3,375 $ 4,548 Debt issuance costs (Note 2)............................... 5,071 2,143 4,242 Package design costs....................................... 1,274 1,456 1,492 Other...................................................... 1,006 1,150 1,098 ------- ------- ------- 7,496 8,124 11,380 Accumulated amortization................................... (3,809) (3,133) (6,124) ------- ------- ------- $ 3,687 $ 4,991 $ 5,256 ======= ======= =======
Product placement fees (or "slotting" fees, as commonly described in the retail grocery industry) are incurred to obtain product distribution relationships with certain customers. The Company's policy is to capitalize such amounts and amortize them over the specified minimum length of the contract or, if undefined, over a 12-month period. In the event the customer relationship is terminated prior to the end of the amortization period, the respective product placement fees are written off. Product placement fees, net of accumulated amortization, were $1,046,000 at June 30, 1997. Debt issuance costs relate to expenditures incurred in connection with obtaining long-term debt. These costs are being amortized over the life of the related debt using the effective interest rate method. Debt issuance costs, net of accumulated amortization, were $3,597,000 at June 30, 1997. Package design costs relate to expenditures incurred in the development of new or enhanced package designs. These costs are amortized ratably over a two-year period. In the event that product packaging is discontinued prior to the end of the amortization period, the respective package design costs are written off. Package design costs, net of accumulated amortization, were $449,000 at June 30, 1997. START UP COSTS In conjunction with its planned initial public offering, the Company elected to expense all start up costs incurred related to the 1995/1996 plant expansion. The related financial statements have been restated retroactively. INCOME TAXES The Company accounts for income taxes in accordance with the method prescribed by Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. F-9 77 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its employee stock options and have adopted the pro forma disclosure requirements under SFAS No. 123 "Accounting for Stock-Based Compensation." Under APB No. 25, because the exercise price of the Company's employee stock options is equal to or greater than the market price of the underlying stock on the date of grant, no compensation expense is recognized. NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is calculated using the weighted-average number of common shares and common equivalent shares, to the extent dilutive, outstanding during the periods. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, stock issued and common stock options granted by the Company during the 12 months preceding the filing date for its planned initial public offering have been included in the calculation of weighted-average common and common equivalent shares outstanding, using the treasury stock method based on the assumed initial public offering price of $ , as if the stock and options were outstanding for all periods presented. 2. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, SEPTEMBER 30, JUNE 30, 1995 1996 1997 ------------ ------------- -------- (IN THOUSANDS) Term loans................................................. $ 93,750 $ 94,813 $85,938 Capital lease, 15-year term with three, five-year renewal options, at an imputed interest rate of 12.5%............ 3,657 3,586 3,509 Capital lease, eight-year term at an imputed interest rate of 8.5%.................................................. 2,210 2,260 2,124 Other...................................................... 944 703 1,614 -------- -------- ------- 100,561 101,362 93,185 Less current portion....................................... 3,109 8,078 3,685 -------- -------- ------- $ 97,452 $ 93,284 $89,500 ======== ======== =======
In April 1997, the Company amended and restated its principal credit agreement in conjunction with a sale of $22.3 million of the Company's common stock to existing stockholders. With the net proceeds from the common stock sale, the Company repaid then outstanding borrowings under the revolving credit agreement and prepaid scheduled long-term debt payments due through December 31, 1997. The amended and restated credit agreement (i) created a $45 million D term loan which will be used in combination with the proceeds from the common stock sale to finance the Company's expansion of capital assets; (ii) increased the Company's revolving credit facility from $17.5 million to $25 million and (iii) modified certain covenant provisions. At June 30, 1997, the Company had $45 million available to borrow under the D term credit facility. Debt issuance costs of approximately $2.1 million related to the April refinancing were capitalized as deferred debt issuance costs during 1997. F-10 78 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 2. LONG-TERM DEBT -- (CONTINUED) In July 1994 and February 1996, the Company refinanced certain of its credit facilities. The unamortized balance of debt issuance costs which related to the previous debt were written off, net of related tax benefits, as an extraordinary loss on debt extinguishment as required by generally accepted accounting principles. These amounts were $329,000 ($204,000 net of taxes) in fiscal 1994 and $2.6 million ($1.6 million net of taxes) in fiscal 1996. The interest rates and principal maturity terms of the credit facility are as follows:
FINAL FACILITY AMOUNT INTEREST RATE MATURITY DATE -------- ------ ------------- ------------- (IN THOUSANDS) Term Loan A................ $ 18,000 LIBOR + 3.00% or prime + 2.00% February 2000 Term Loan B................ 19,900 LIBOR + 3.25% or prime + 2.25% February 2002 Term Loan C................ 54,700 LIBOR + 3.75% or prime + 2.75% February 2004 Term Loan D................ 45,000 LIBOR + 3.75% or prime + 2.75% February 2004 -------- 137,600 Maximum Revolving Credit Facility................. 25,000 LIBOR + 3.00% or prime + 2.00% February 2000 -------- $162,600 ========
Debt principal is to be repaid in varying quarterly installments with interest over the terms shown above. The borrowing under the Revolving Credit Facility is limited to the lesser of $25 million or available collateral as defined in the amended credit agreement. At June 30, 1997, the revolving credit line had approximately $24.5 million available for future borrowings, subject to borrowing base limitations and outstanding letters of credit. The following information related to the revolving credit facility is presented for the years ended December 31, 1994 and 1995, the nine-month fiscal period ended September 30, 1996 and the nine months ended June 30, 1997.
1994 1995 1996 1997 ---- ---- ---- ---- Weighted-average interest rate.................. 7.9% 9.0% 8.4% 8.6%
F-11 79 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 2. LONG-TERM DEBT -- (CONTINUED) Annual maturities of long-term debt and capital lease obligations for each of the next five years ended June 30, are as follows:
LONG-TERM CAPITAL YEAR DEBT LEASES TOTAL ---- --------- ------- ----- (IN THOUSANDS) 1998............................................. $ 2,875 $ 1,558 1999............................................. 6,000 1,521 2000............................................. 7,300 1,335 2001............................................. 10,150 994 2002............................................. 13,750 994 Thereafter....................................... 45,863 5,460 ------- ------- 85,938 11,862 $97,800 Less imputed interest............................ -- 4,615 4,615 ------- ------- ------- Present value of net minimum payments............ 85,938 7,247 93,185 Less current portion............................. 2,875 810 3,685 ------- ------- ------- Long-term obligations............................ $83,063 $ 6,437 $89,500 ======= ======= =======
The term loans and revolving credit agreement contain various restrictive covenants which include, among other things, financial covenants requiring minimum and cumulative earnings levels and limitations on the payment of dividends, stock purchases, and capital spending, and the Company's ability to enter into certain contractual arrangements. In addition to the above scheduled principal maturities, the credit agreement also provides that excess cash flow (as annually defined) will be used to fund future principal maturities. The facilities are secured by substantially all assets of the Company. The Company leases certain assets under capital lease agreements. At December 31, 1995, September 30, 1996 and June 30, 1997, the cost of these assets was $6,987,000, $7,128,000 and $7,949,000, respectively, and related accumulated amortization was $155,000, $642,000 and $556,000, respectively. 3. INCOME TAXES At June 30, 1997, the Company has net operating loss carryforwards of $26.6 million for federal income tax purposes that expire in varying amounts through the year 2010. The Company also has state income enterprise zone credits of approximately $1 million that expire in 1997. The Company has established a valuation allowance of $1,031,000 for state enterprise zone credits that are available but are not expected to be realized. Management believes it is more likely than not that remaining deferred tax assets will be realized through the generation of future taxable income and available tax planning strategies. F-12 80 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 3. INCOME TAXES -- (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, SEPTEMBER 30, JUNE 30, 1995 1996 1997 ------------ ------------- -------- (IN THOUSANDS) Deferred tax assets: Net operating loss carryforward.......................... $ 5,012 $ 9,730 $10,573 State enterprise zone credits............................ 1,031 1,031 1,031 AMT credit carryforward.................................. 561 561 515 Other.................................................... 1,064 988 688 ------- ------- ------- Total deferred tax assets.................................. 7,668 12,310 12,807 Deferred tax liabilities: Book basis of tangible assets greater than tax........... 4,311 6,721 8,756 Other.................................................... 166 710 473 ------- ------- ------- Total deferred tax liabilities............................. 4,477 7,431 9,229 ------- ------- ------- Net deferred tax assets before allowance................... 3,191 4,879 3,578 Valuation allowance for deferred tax assets................ (1,031) (1,031) (1,031) ------- ------- ------- Net deferred tax assets.................................... $ 2,160 $ 3,848 $ 2,547 ======= ======= =======
Significant components of the provision for income taxes are as follows:
YEAR ENDED NINE MONTHS NINE MONTHS DECEMBER 31 ENDED ENDED -------------- SEPTEMBER 30, JUNE 30, 1994 1995 1996 1997 ---- ---- ------------- ----------- (IN THOUSANDS) Current income tax expense............................ $ 316 $ 6 $ -- $ -- Deferred tax expense (benefit)........................ 1,134 264 (656) 1,375 Change in valuation allowance......................... 34 -- -- -- ------ ---- ----- ------ Net income tax expense (benefit)...................... $1,484 $270 $(656) $1,375 ====== ==== ===== ======
F-13 81 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 3. INCOME TAXES -- (CONTINUED) The reconciliation of income tax computed at the U.S. statutory tax rate to income tax expense is as follows:
YEAR ENDED NINE MONTHS NINE MONTHS DECEMBER 31 ENDED ENDED -------------- SEPTEMBER 30, JUNE 30, 1994 1995 1996 1997 ---- ---- ------------- ----------- (IN THOUSANDS) Income (loss) before income taxes..................... $3,870 $746 $(1,738) $3,604 U.S. statutory tax rate............................... x34% x34% x34% x34% ------ ---- ------- ------ Federal income tax expense (benefit) at U.S. statutory rate................................................ 1,316 254 (591) 1,225 State income tax expense (benefit), net of federal tax effect.............................................. 155 30 (70) 144 Change in valuation allowance......................... 34 -- -- -- Other, net............................................ (21) (14) 5 6 ------ ---- ------- ------ Net income tax expense (benefit)...................... $1,484 $270 $ (656) $1,375 ====== ==== ======= ======
4. COMMITMENTS AND CONTINGENCIES In April 1997, the Company entered into a long-term supply arrangement in which the Company is obligated to produce and the customer is obligated to purchase certain minimum annual volumes of pasta products beginning in fiscal 1998. In order to fulfill its obligations under the contract, the Company will be required to expand significantly its available production capacity. The Company has committed approximately $86 million to expand significantly its existing manufacturing, milling and distribution facilities. The expansion assets are anticipated to be placed in service during fiscal 1998. As of June 30, 1997, cumulative expansion expenditures are $7,839,000, including capitalized interest of $136,000. The remaining expansion costs will be funded from a portion of the proceeds from the Company's common stock sale (see Note 12), available bank debt credit facilities and cash provided by operations. The Company had durum wheat purchase commitments totaling approximately $7.9 million, $8.0 million and $6.3 million at December 31, 1995, September 30, 1996 and June 30, 1997, respectively. Under an agreement with its predominant rail carrier, the Company is obligated to transport specified wheat volumes. In the event the specified transportation volumes are not met, the Company is required to reimburse certain rail carrier costs. The Company is in compliance with the volume obligations at June 30, 1997. 5. MAJOR CUSTOMERS Sales to a certain customer during the years ended December 31, 1994 and 1995, the fiscal nine-months ended September 30, 1996 and the nine-months ended June 30, 1997 represented 38%, 33%, 27% and 27% of revenues, respectively. Sales to a second customer during the years ended December 31, 1994 and 1995, the fiscal nine-months ended September 30, 1996 and the nine-months ended June 30, 1997 represented 12%, 23%, 19% and 21% of revenues, respectively. 6. STOCK OPTION PLAN In October 1992, a stock option plan was established that authorizes the granting of options to purchase up to 196,000 shares of the Company's no par common stock by certain officers and key employees. In October 1993, an additional plan was established that authorizes the granting of options to purchase up to F-14 82 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 6. STOCK OPTION PLAN -- (CONTINUED) 13,500 shares of the Company's no par common stock. The stock options expire 10 years from the date of grant and become exercisable over the next five years in varying amounts depending on the terms of the individual option agreements.
WEIGHTED AVERAGE NUMBER OF OPTION PRICE EXERCISE SHARES PER SHARE PRICE EXERCISABLE --------- ------------ -------- ----------- Outstanding at December 31, 1993................. 92,292 $14.27-$30.17 $23.89 45,432 Exercised...................................... -- Granted........................................ 19,030 $30.17 $30.17 Canceled/Expired............................... (1,500) $30.17 $30.17 ------- Outstanding at December 31, 1994................. 109,822 $14.27-$30.17 $24.89 61,064 Exercised...................................... -- Granted........................................ 55,375 $75.00 $75.00 Canceled/Expired............................... -- ------- Outstanding at December 31, 1995................. 165,197 $14.27-$75.00 $41.64 74,354 Exercised...................................... -- Granted........................................ 200 $75.00 $75.00 Canceled/Expired............................... (100) $75.00 $75.00 ------- Outstanding at September 30, 1996................ 165,297 $14.27-$75.00 $41.71 88,302 Exercised...................................... -- Granted........................................ 42,135 $43.06-$75.00 $54.08 Canceled/Expired............................... (7,930) $30.17-$75.00 $73.30 ------- Outstanding at June 30, 1997..................... 199,502 $14.27-$75.00 $43.06 108,068 =======
The following table summarizes outstanding and exercisable options at June 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------ ------------------------------ NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE EXERCISE PRICES OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISE PRICE --------------- ----------- ---------------- ----------- ---------------- $14.27-$14.61............................. 36,930 $14.47 36,930 $14.47 $30.17.................................... 72,592 30.17 52,738 30.17 $43.06.................................... 27,600 43.06 9,200 43.06 $75.00.................................... 62,380 75.00 9,200 75.00
Compensation expense totaling $144,000 was recorded during the year ended December 31, 1994 related to the vesting of compensatory stock options. SFAS No. 123 requires the disclosure of pro forma net income and earnings per share for stock-based awards as if the Company had used the fair value method of accounting for such awards. Under SFAS No. 123, the fair value is calculated through the use of option pricing models. These models require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the minimum value method with the following weighted-average assumptions: expected life, 18 months following vesting; no stock volatility; risk free interest rate of 6% and no dividends during the expected term. Based on these calculations, the effect of applying SFAS No. 123's fair value method to the Company's stock-based awards granted subsequent to December 15, 1994 results in pro forma net income and earnings per share that are not materially different from amounts reported. F-15 83 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 7. EMPLOYEE BENEFIT PLAN The Company has a defined contribution plan organized under Section 401(k) of the Internal Revenue Code covering substantially all employees. The plan allows all qualifying employees to contribute up to the tax deferred contribution limit allowable by the Internal Revenue Service. The Company will match 50% of the employee contributions up to a maximum employee contribution of 6% of the employee's salary and may contribute additional amounts to the plan as determined annually by the Board of Directors. Employer contributions related to the plan totaled $133,000, $139,000, $124,000 and $140,000 for the years ended December 31, 1994 and 1995, the fiscal nine-months ended September 30, 1996 and the nine-months ended June 30, 1997, respectively. 8. PLANT EXPANSION COSTS Plant expansion costs include incremental direct and indirect manufacturing and distribution costs which are incurred as a result of construction, commissioning and start-up of new capital assets. These costs are expensed as incurred but are unrelated to current production and, therefore, reported as a separate line item in the statement of operations. Plant expansion costs amounted to $484,000 and $2,065,000 for the years ended December 31, 1994 and 1995, respectively. 9. SUPPLEMENTAL CASH FLOW INFORMATION
NINE MONTHS NINE MONTHS YEAR ENDED YEAR ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, JUNE 30, 1994 1995 1996 1997 ------------ ------------ ------------- ----------- (IN THOUSANDS) Supplemental disclosure of cash flow information: Cash paid for interest..................... $5,110 $9,675 $8,101 $7,520 ====== ====== ====== ====== Cash paid for income taxes................... $ 250 $ 100 $ 50 $ 2 ====== ====== ====== ======
10. PRODUCT INTRODUCTION COSTS During 1996, the Company began distribution of its Pasta LaBella flavored pasta products into the United States' retail grocery trade. Introduction of these products was supported by significant advertising, promotions and other initiatives. The Company's results include the following product introduction expenses for the following periods:
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, JUNE 30, 1996 1997 ------------- ----------- (IN THOUSANDS) Introductory advertising.............................. $3,587 $ 137 In-store product demonstrations....................... 692 307 Direct response advertising amortization.............. 166 200 Product placement fee amortization.................... 744 2,657 Introductory trade incentives......................... 268 -- Other................................................. 296 157 ------ ------ Total product introduction costs...................... $5,753 $3,458 ====== ======
F-16 84 AMERICAN ITALIAN PASTA COMPANY NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) JUNE 30, 1997 11. NOTES RECEIVABLE FROM OFFICERS In April 1997, certain officers of the Company acquired 6,909 shares of common stock. At the same time, the Company loaned these officers $298,000, all of which remains outstanding at June 30, 1997. The loans which were evidenced by promissory notes are due in three equal installments with the final payment due April 2000. The notes are collateralized by the pledge of shares of common stock of the Company, may be prepaid in part or in full without notice or penalty and bear interest at the applicable federal rate in effect on the first day of each quarter. These loans, evidenced by promissory notes, are classified as a reduction to stockholders equity in the accompanying balance sheet at June 30, 1997. 12. RECAPITALIZATION Prior to the consummation of the Company's initial public offering, the Company will amend and restate its certificate of incorporation and effect a recapitalization, pursuant to which each share of common stock and Class A common stock of the Company outstanding immediately prior to the recapitalization will be converted into shares of Class A common stock. F-17 85 AIPC PASTA PRODUCTION FACILITIES [Photographs of the equipment contained in the Company's pasta production facilities.] 86 AIPC LOGO 87 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. [AIPC LOGO] [ALTERNATE INTERNATIONAL COVER PAGE] PROSPECTUS (Subject to Completion) Issued August 5, 1997 Shares American Italian Pasta Company CLASS A COMMON STOCK ------------------------ OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, SHARES ARE BEING SOLD BY THE COMPANY AND SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDER. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES OF CLASS A COMMON STOCK BY THE SELLING STOCKHOLDER. OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED HEREBY, SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. ------------------------ THE COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK CONSISTING OF THE CLASS A COMMON STOCK OFFERED HEREBY AND CLASS B COMMON STOCK. SEE "DESCRIPTION OF CAPITAL STOCK." HOLDERS OF CLASS A COMMON STOCK ARE ENTITLED TO ONE VOTE PER SHARE ON EACH MATTER SUBMITTED TO A VOTE OF STOCKHOLDERS. THE CLASS B COMMON STOCK IS NON-VOTING EXCEPT UNDER CERTAIN LIMITED CIRCUMSTANCES AND AS REQUIRED BY LAW. ALL HOLDERS OF COMMON STOCK ARE ENTITLED TO RECEIVE SUCH DIVIDENDS AND DISTRIBUTIONS, IF ANY, AS MAY BE DECLARED FROM TIME TO TIME BY THE BOARD OF DIRECTORS. ------------------------ APPLICATION HAS BEEN MADE FOR LISTING OF THE CLASS A COMMON STOCK ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "PLB." ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PRICE $ A SHARE ------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDER -------- -------------- ----------- ------------------- Per Share...................... $ $ $ $ Total(3)....................... $ $ $ $
- ------------ (1) The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriters." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company and the Selling Stockholder have granted to the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of additional Shares of Class A Common Stock at the Price to Public less Underwriting Discounts and Commissions, for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Stockholder will be $ , $ , $ , and $ , respectively. See "Underwriters." ------------------------ The Shares of Class A Common Stock are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the Shares of Class A Common Stock will be made on or about , 1997 at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in immediately available funds. ------------------------ MORGAN STANLEY DEAN WITTER ALEX. BROWN & SONS INTERNATIONAL GOLDMAN SACHS INTERNATIONAL GEORGE K. BAUM & COMPANY , 1997 88 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the Offering described in this Registration Statement. Securities and Exchange Commission registration fee......... $ 34,849 NASD Examination Fee........................................ 12,000 New York Stock Exchange Listing Fee......................... * Accounting Fees and Expenses................................ * Printing and Engraving Expenses............................. * Legal Fees and Expenses..................................... * Blue Sky Fees and Expenses.................................. * Transfer Agent and Registrar Fees and Expenses.............. * Miscellaneous............................................... * ---------- Total.................................................. $ * ==========
- ------------------------- * To be completed by amendment. The foregoing items, except for the Securities and Exchange Commission, NASD and New York Stock Exchange fees, are estimated. All expenses will be borne by the Company. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law ("DGCL"), empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Similar indemnity is authorized for such persons against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of any such threatened, pending or completed action or suit by or in the right of the corporation if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and provided further that (unless a court of competent jurisdiction otherwise provides) such person shall not have been adjudged liable to the corporation. Any such indemnification may be made only as authorized in each specific case upon a determination by the stockholders or disinterested directors or by independent legal counsel in a written opinion that indemnification is proper because the indemnitee has met the applicable standard of conduct. The Charter and By-laws of the Company provide that directors and officers shall be indemnified as described above in this paragraph to the fullest extent permitted by the DGCL; provided, however, that any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person shall be indemnified only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company. The Charter and By-laws will permit the board of directors to authorize the Company to purchase and obtain insurance against any liability asserted against any director, officer, employee or agent of the Company arising out of his or her capacity as such. Reference is made to Article V of the Company's Charter filed as Exhibit 3.1 hereto and to Article VI of the Company's By-laws filed as Exhibit 3.2 hereto. As permitted by the DGCL, the Company's Charter provides that no director of the Company shall be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a II-1 89 director, except (i) for a breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (relating to the declaration of dividends and purchase or redemption of shares in violation of the DGCL), or (iv) for any transaction from which the director derived an improper personal benefit. The Underwriting Agreement, filed as Exhibit 1.1 to this Registration Statement, provides for indemnification by the Underwriters of the Registrant's directors, its officers who signed the Registration Statement and its controlling persons and by the Registrant of the Underwriters, directors and their controlling persons against certain liabilities, including liabilities under the Securities Act, under certain circumstances. Reference is also made to the Amended and Restated Stockholders Agreement filed as Exhibit 10.9 hereto, for a description of certain other indemnification arrangements relating to directors and officers of the Company. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In the three years preceding the filing of this Registration Statement, the Company has issued the following securities that were not registered under the Securities Act: (a) On January 14, 1994, the Company issued to Horst W. Schroeder, its Chairman of the Board, 505 shares of Old Common Stock (as defined under "Description of Capital Stock -- General" in the Prospectus) for an aggregate purchase price of $15,236, or $30.17 per share, in lieu of cash compensation under a consulting agreement between HWS Associates, Inc., an entity owned by Mr. Schroeder, and the Company (the "Schroeder Consulting Agreement"). (b) On March 8, 1995, the Company issued to Mr. Schroeder 3,490 shares of Old Common Stock for an aggregate purchase price of $105,293, or $30.17 per share, in lieu of cash compensation under the Schroeder Consulting Agreement. (c) On April 13, 1995 the Company issued an aggregate of 3,315 shares of Old Common Stock to certain of the Company's then-executive officers, including Timothy S. Webster, David E. Watson, Norman F. Abreo, David B. Potter and Darrel Bailey, for an aggregate purchase price of $100,014, or $30.17 per share. These shares were purchased with funds loaned by the Company evidenced by promissory notes made payable to the Company over a three year period with interest at the then applicable federal rate. (d) On July 7, 1995, the Company issued to JSS Management Co. Ltd., of which Mr. Schlindwein is a general partner, 3,314 shares of Old Class A Common Stock (as defined under "Description of Capital Stock -- General" in the Prospectus) for a purchase price of $99,983, or $30.17 per share. (e) On December 28, 1995, the Company issued to Mr. Schroeder 1,910 shares of Old Common Stock for a purchase price of $57,625, or $30.17 per share, in lieu of cash compensation under the Schroeder Consulting Agreement. (f) On April 4, 1996, the Company issued to Mr. Schroeder 1,098 shares of Old Common Stock for a purchase price of $33,127, or $30.17 per share, in lieu of cash compensation under the Schroeder Consulting Agreement. (g) On April 15, 1997, the Company issued an aggregate of 517,695 shares of Old Class A Common Stock at a purchase price of $43.06 per share, aggregating $22,291,947, to each of the then current stockholders of the Company, other than Citicorp Venture Capital, Ltd., and several members of the Company's management team (the "1997 Private Equity Financing"). In particular, the Company issued 418,021 shares to the MSCP Funds (as defined in the Prospectus), 69,670 shares to affiliated entities of George K. Baum & Company, an aggregate of 8,000 shares to a trust for the benefit of Mr. Schroeder and members of his family, an aggregate of 4,645 shares to James Schlindwein, his wife and JSS Management Co. Ltd., of which Mr. Schlindwein is a general partner, an aggregate of 3,301 shares to Timothy S. Webster and trusts for the benefit of members II-2 90 of his family, 6,933 shares to David E. Watson, 847 shares to Norman F. Abreo and 2,124 shares to David B. Potter. (h) On June 24, 1997, the Company issued 5,088 shares of Old Class A Common Stock to the American Italian Pasta Company Retirement Savings Plan pursuant to an exemption from securities laws registration requirements set forth in Section 3(a)(2) of the Securities Act. No underwriters were involved in the foregoing sales of securities. Except as indicated above, all of these sales were made in reliance upon an exemption from the registration provisions of the Securities Act set forth in Section 4(2) thereof relating to sales by an issuer not involving any public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBIT INDEX The exhibit index is set forth on page II-6 of this Registration Statement and is hereby incorporated herein by reference. (B) FINANCIAL STATEMENT SCHEDULES No financial statement schedules are filed as part of this Registration Statement for the reason that they are not required or are not applicable, or the required information is shown in the Financial Statements or Notes thereto. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) It will provide to the Underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-3 91 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Excelsior Springs, State of Missouri, as of the 4th day of August, 1997. AMERICAN ITALIAN PASTA COMPANY By: /s/ TIMOTHY S. WEBSTER ------------------------------------ Timothy S. Webster President and Chief Executive Officer II-4 92 POWER OF ATTORNEY AND SIGNATURES Each of the undersigned hereby severally constitute and appoint Timothy S. Webster and David E. Watson, and each of them singly, with power of substitution and resubstitution, as his or her true and lawful attorneys, with full power to them and each of them singly, to sign for us in our names in the capacities indicated below, all pre-effective and post-effective amendments to this Registration Statement, including any filings pursuant to Rule 462(b) under the Securities Act of 1933, and generally to do all things in our names and on our behalf in such capacities to enable American Italian Pasta Company to comply with the provisions of the Securities Act of 1933, and all requirements of the Securities and Exchange Commission. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. /s/ HORST W. SCHROEDER Chairman of the Board of Directors August 4, 1997 - --------------------------------------- Horst W. Schroeder /s/ TIMOTHY S. WEBSTER President, Chief Executive Officer and August 4, 1997 - --------------------------------------- Director (Principal Executive Officer) Timothy S. Webster /s/ DAVID E. WATSON Executive Vice President and Chief August 4, 1997 - --------------------------------------- Financial Officer, Treasurer and Secretary David E. Watson (Principal Financial and Accounting Officer) /s/ JONATHAN E. BAUM Director August 4, 1997 - --------------------------------------- Jonathan E. Baum /s/ DAVID Y. HOWE Director August 4, 1997 - --------------------------------------- David Y. Howe /s/ ROBERT H. NIEHAUS Director August 4, 1997 - --------------------------------------- Robert H. Niehaus /s/ AMY S. ROSEN Director August 4, 1997 - --------------------------------------- Amy S. Rosen /s/ JAMES A. SCHLINDWEIN Director August 4, 1997 - --------------------------------------- James A. Schlindwein /s/ LAWRENCE B. SORREL Director August 4, 1997 - --------------------------------------- Lawrence B. Sorrel /s/ RICHARD C. THOMPSON Director August 4, 1997 - --------------------------------------- Richard C. Thompson
II-5 93 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1* Form of Underwriting Agreement 3.1 Form of Amended and Restated Certificate of Incorporation of the Company 3.2 Form of Amended and Restated By-Laws of the Company 4.1* Form of specimen certificate representing the Company's Class A Common Stock 4.2* Form of specimen certificate representing the Company's Class B Common Stock 5.1* Opinion of Sonnenschein Nath & Rosenthal 8.1* Opinion of Sonnenschein Nath & Rosenthal with respect to certain tax matters 10.1 Credit Agreement among the Company, various banks named therein, Bankers Trust Company and Morgan Stanley Senior Funding, Inc. dated as of October 30, 1992, as amended and restated as of April 11, 1997 10.2+* Manufacturing and Distribution Agreement dated as of April 15, 1997 between CPC International Inc. and the Company 10.3+* Amended and Restated Supply Agreement dated October 29, 1992, as amended July 1, 1997, between the Company and Sysco Corporation 10.4 Warehouse Lease dated May 23, 1995 between the Company and Lanter Company 10.5* Employment Agreement dated , 1997 between the Company and Timothy S. Webster 10.6* Employment Agreement dated as of January 1, 1996 between the Company and Horst W. Schroeder 10.7* Employment Agreement dated , 1997 between the Company and David E. Watson 10.8* Employment Agreement dated , 1997 between the Company and Norman F. Abreo 10.9* Form of Amended and Restated Stockholders Agreement dated , 1997 10.10 American Italian Pasta Company 1992 Stock Option Plan 10.11 American Italian Pasta Company 1993 Non-Qualified Stock Option Plan 23.1 Consent of Ernst & Young LLP 23.2* Consent of Sonnenschein Nath & Rosenthal (to be included in Exhibit 5.1 and Exhibit 8.1) 24.1 Powers of Attorney (included on signature page) 27.1 Financial Data Schedule
- ------------------------- * To be filed by amendment + Confidential treatment will be requested for portions of this document. The redacted material will be filed separately with the Commission. II-6 EX-3.1 2 AMENDED AND RESTATED CERT. OF INCORPORATION 1 EXHIBIT 3.1 _______________________________ AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN ITALIAN PASTA COMPANY ______________________________ American Italian Pasta Company, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is American Italian Pasta Company. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on October 9, 1991. 2. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, as amended (the "DGCL"), this Amended and Restated Certificate of Incorporation restates and further amends the provisions of the Certificate of Incorporation of this Corporation. Pursuant to and in accordance with the provisions of Section 228 of the DGCL, written consent to this Amended and Restated Certificate of Incorporation has been given in lieu of a vote of stockholders at a meeting and written notice of such written consent has been given to all stockholders who have not consented in writing to this Amended and Restated Certificate of Incorporation. 3. The text of the original Certificate of Incorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as follows: ARTICLE I NAME SECTION 1.1 NAME. The name of the Corporation is American Italian Pasta Company. ARTICLE II REGISTERED OFFICE AND REGISTERED AGENT SECTION 2.1 OFFICE AND AGENT. The registered office of the Corporation in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, in the County of New Castle. The name of its registered agent at that address is The Corporation Trust Company. ARTICLE III CORPORATE PURPOSE SECTION 3.1 PURPOSE. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL. 2 ARTICLE IV CAPITALIZATION SECTION 4.1 AUTHORIZED CAPITAL. SHARES. (a) The Corporation is authorized to issue three classes of stock to be designated, respectively, "Class A Convertible Common Stock", "Class B Convertible Non-Voting Common Stock" (referred to herein collectively with the Class A Convertible Common Stock as the "Common Stock") and "Preferred Stock." The total number of shares that the Corporation is authorized to issue is _____ million shares, of which _____ million shares shall be Class A Convertible Common Stock, par value $.001 per share, _____ million shares shall be Class B Convertible Non-Voting Common Stock, par value $.001 per share, and _____ million shares shall be Preferred Stock, par value $.001 per share. (b) Concurrently with the effectiveness of this Amended and Restated Certificate of Incorporation, each share of common stock, no par value per share, and Class A common stock, par value $.01 per share, of the Corporation outstanding immediately prior to the effectiveness of this Amended and Restated Certificate of Incorporation shall be redesignated as _____ shares of Class A Convertible Common Stock. SECTION 4.2 COMMON STOCK. The designations and the powers, preferences and rights of the Common Stock are as follows: (a) VOTING RIGHTS. (i) CLASS A CONVERTIBLE COMMON STOCK. Except as set forth herein or as otherwise required by law, each outstanding share of Class A Convertible Common Stock shall be entitled to vote on each matter on which the stockholders of the Corporation shall be entitled to vote, including the election of directors, and each holder of Class A Convertible Common Stock shall be entitled to one vote for each share of such stock held by such holder. (ii) CLASS B CONVERTIBLE NON-VOTING COMMON STOCK. Except as set forth herein or as otherwise required by law, each outstanding share of Class B Convertible Non-Voting Common Stock shall not be entitled to vote on any matter on which the stockholders of the Corporation shall be entitled to vote, and shares of Class B Convertible Non-Voting Common Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters. Notwithstanding the foregoing, holders of shares of the Class B Convertible Non-Voting Common Stock shall be entitled to vote as a separate class on any amendment to this subparagraph (a)(ii) and on any amendment, repeal or modification of any provision of this Amended and Restated Certificate of Incorporation ("Certificate of Incorporation") that adversely affects the powers, preferences or special rights of holders of the Class B Convertible Non-Voting Common Stock. The number of authorized shares of Class B Convertible Non-Voting Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding plus the -2- 3 number of shares of Class B Convertible Non-Voting Common Stock issuable or exercisable pursuant to any security of the Corporation providing for the issuance or delivery of Class B Convertible Non-Voting Common Stock) by the affirmative vote of the holders of a majority of the outstanding shares of Class A Convertible Common Stock and without any vote or consent of the holders of shares of Class B Convertible Non-Voting Common Stock. (b) DIVIDENDS AND DISTRIBUTIONS. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the Board of Directors of the Corporation (the "Board of Directors") may cause dividends to be paid to the holders of shares of Common Stock out of funds legally available for the payment of dividends by declaring an amount per share as a dividend. When and as dividends or other distributions (including without limitation any grant or distribution of rights to subscribe for or purchase shares of capital stock or securities or indebtedness convertible into capital stock of the Corporation) are declared, whether payable in cash, in property or in shares of stock of the Corporation (other than in shares of Common Stock) the holders of Common Stock shall be entitled to share equally, share for share, in such dividends or other distributions as if all such shares were of a single class. No dividends or other distributions shall be declared or paid in shares of Common Stock, or options, warrants or rights to acquire such stock or securities convertible into or exchangeable for shares of such stock, except dividends or other distributions payable to all of the holders of Common Stock ratably according to the number of shares held by them, in shares of Class A Convertible Common Stock to holders of that class of stock, and in shares of Class B Convertible Non-Voting Common Stock to holders of that class of stock. (c) LIQUIDATION. Subject to the prior rights of holders of all classes of stock outstanding having prior rights with respect to the assets of the Corporation, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Common Stock shall be entitled to share ratably according to the number of shares held by them, in all assets of the Corporation available for distribution to its stockholders. (d) CONVERSION. (i) CONVERSION OF CLASS A CONVERTIBLE COMMON STOCK. (A) OPTIONAL CONVERSION. Subject to and upon compliance with the provisions of this subparagraph (d), each Morgan Stanley Stockholder (as hereinafter defined) shall be entitled to convert, at any time and from time to time, any or all of the shares of Class A Convertible Common Stock held by such stockholder into an equal number of shares of Class B Convertible Non-Voting Common Stock; PROVIDED that following receipt of a Deferral Notice (as defined in paragraph (d)(iv) below), the aggregate number of shares of Class A Convertible Common Stock permitted to be converted at the end of the related Deferral Period (as defined in paragraph (d)(iv) below) by each such stockholder (other than a stockholder that requested a conversion and thereby triggered such Deferral Notice, which stockholder shall be entitled to convert all shares such stockholder has requested to convert) in accordance with paragraph (d)(iv) shall -3- 4 be equal to the number of shares of Class A Convertible Common Stock held by such stockholder that are required to be converted so that such stockholder (after giving effect to the proposed redemption, repurchase or other acquisition, if any, and to all other conversions during or upon the expiration of such Deferral Period) holds the same percentage of the total outstanding Class A Convertible Common Stock as such stockholder held immediately prior to the receipt of the relevant Deferral Notice. (B) AUTOMATIC CONVERSION. Notwithstanding anything to the contrary in the immediately preceding clause (A), in the case of any such conversion (including any conversion in accordance with paragraph (d)(iv)) or in the case of any acquisition of additional shares of Class A Convertible Common Stock by any Morgan Stanley Stockholder, shares of Class A Convertible Common Stock held by Morgan Stanley Stockholders shall, pro rata in proportion to the number of shares of Class A Convertible Common Stock held by all Morgan Stanley Stockholders, automatically, without any action on part of the transferor, the transferee or the Corporation, be converted into shares of Class B Convertible Non-Voting Common Stock to the extent necessary so that, after giving effect to all such conversions (and to any other related redemptions, repurchases or other acquisitions), the Morgan Stanley Stockholders shall not own in the aggregate a number of shares of Class A Convertible Common Stock greater than the MS Percentage (as hereinafter defined). (ii) CONVERSION OF CLASS B CONVERTIBLE NON-VOTING COMMON STOCK. (A) OPTIONAL CONVERSION. Subject to and upon compliance with the provisions of this subparagraph (d), each Morgan Stanley Stockholder shall be entitled at any time and from time to time, if at such time the Morgan Stanley Stockholders shall beneficially own, in the aggregate, a number of shares of Class A Convertible Common Stock that is less than the MS Percentage, to convert a number of its shares of Class B Convertible Non-Voting Common Stock held by such Morgan Stanley Stockholder, pro rata in proportion to the number of shares of Class B Convertible Non-Voting Common Stock held by all Morgan Stanley Stockholders, into an equal number of shares of Class A Convertible Common Stock such that, if all Morgan Stanley Stockholders were to concurrently exercise the right to convert as set forth in this subparagraph (d)(ii), the Morgan Stanley Stockholders would, immediately following such conversion, beneficially own in the aggregate a number of shares of Class A Convertible Common Stock no greater than the MS Percentage. (B) AUTOMATIC CONVERSION UPON TRANSFER. Upon a Transfer (as hereinafter defined) by any Morgan Stanley Stockholder of any shares of Class B Convertible Non-Voting Common Stock to a person other than any other Morgan Stanley Stockholder or any Affiliate of any Morgan Stanley Stockholder, any shares of Class B Convertible Non-Voting Common Stock so Transferred -4- 5 shall automatically, without any action on part of the transferor, the transferee or the Corporation, be converted into an equal number of shares of Class A Convertible Common Stock upon the consummation of such Transfer. Each such conversion shall be deemed to have been effected immediately prior to the close of business on the date the share is Transferred. (iii) MECHANICS OF CONVERSION. (A) OPTIONAL CONVERSION. Each optional conversion of shares of any class of Common Stock of the Corporation into shares of another class of Common Stock of the Corporation shall be effected by the surrender of the certificate or certificates representing the shares to be converted (the "Converting Shares") accompanied by instruments of transfer satisfactory to the Corporation and the payment in cash of any amount required pursuant to subparagraph (d)(viii) below and sufficient to transfer the Converting Shares to the Corporation free of any adverse interest, at the principal office of the Corporation or any of the offices or agencies maintained for such purpose by the Corporation ("Transfer Agent") and shall give written notice (by registered or certified mail, overnight courier or hand delivery) to the Corporation at such Transfer Agent that such holder desires to convert the Converting Shares, or a stated number of the shares represented by such certificate or certificates, into an equal number of shares of the class into which such shares may be converted (the "Converted Shares"). Such notice shall also state the name or names (with addresses) and denominations in which the certificate or certificates for Converted Shares are to be issued and shall include instructions for the delivery thereof. The Corporation shall promptly notify each Morgan Stanley Stockholder of its receipt of such notice. As promptly as practicable after the surrender of such Converting Shares as aforesaid, the Corporation will, subject to the terms of subparagraphs (d)(i) and (d)(ii) hereof, issue and deliver in accordance with the surrendering holder's instructions the certificate or certificates evidencing the Converted Shares issuable upon such conversion, and the Corporation will deliver to the converting holder a certificate (which shall contain such legends as were set forth on the surrendered certificate or certificates) representing any shares which were represented by the certificate or certificates that were delivered to the Corporation in connection with such conversion, but which were not converted; PROVIDED, HOWEVER, that if such conversion is subject to subparagraph (d)(iv) below, the Corporation shall not issue such certificate or certificates until the expiration of the Deferral Period referred to therein. Such conversion, to the extent permitted by law, shall be deemed to have been effected as of the close of business on the date on which such surrendered certificate or certificates shall have been received by the Corporation as provided herein, and at such time the rights of the holder of the Converting -5- 6 Shares as such holder shall cease and the person or persons in whose name or names the certificate or certificates for the Converted Shares are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the Converted Shares. Notwithstanding the foregoing, in the case of a conversion subject to subparagraph (d)(iv) below, the conversion shall be deemed effective upon the expiration of the Deferral Period referred to therein. (B) AUTOMATIC CONVERSION. Each automatic conversion of shares of any class of Common Stock of the Corporation into shares of another class of Common Stock of the Corporation shall be deemed to have been effected immediately prior to the close of business on the date the share is automatically converted in accordance with this subparagraph (d). In each such case the person or persons in whose name or names any certificate of certificates for Converted Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the Converted Shares represented thereby at the effective date of such conversion, unless the stock transfer books of the Corporation shall be closed on such date, in which event such conversion shall be deemed to have been effected immediately following the opening of business on the next day on which the stock transfer books of the Corporation shall be open. Following any such automatic conversion, the share or shares of Common Stock so converted shall cease to be outstanding, notwithstanding the fact that the holder or holders may not have surrendered the certificate or certificates representing such Converting Shares for conversion, and such certificate or certificates shall thereafter represent solely the right to receive a certificate or certificates for the Converted Shares Stock issuable upon such automatic conversion, upon surrender of such certificate or certificates to the Corporation or its transfer agent, of the certificate or certificates representing the Converting Shares so converted. (iv) NOTICE OF CONVERSIONS OR OTHER TRANSFERS TO THE MORGAN STANLEY STOCKHOLDERS. The Corporation shall not convert or directly or indirectly redeem, repurchase or otherwise acquire any shares of Class A Convertible Common Stock or any other class of capital stock of the Corporation or take any other action affecting the voting rights of such shares if such action would increase the percentage of any class of outstanding voting securities of the Corporation beneficially owned or controlled by any Morgan Stanley Stockholder (other than any such stockholder which requested that the Corporation take such action, or which otherwise waives in writing its rights under this subparagraph (d)(iv)), unless the Corporation gives written notice (the "Deferral Notice") of such action to each Morgan Stanley Stockholder. The Corporation will defer making any such conversion, redemption, purchase or other acquisition, or taking any such other action, for a period of 10 business days (the "Deferral Period") after giving the Deferral Notice in order to allow each Morgan Stanley Stockholder to determine whether it wishes to convert or take any other action with respect to the Common Stock it beneficially owns, controls or has the power to vote, and if any such Morgan Stanley Stockholder then elects to convert any shares of Class A Convertible Common Stock it shall notify -6- 7 the Corporation in writing within five business days of the issuance of the Deferral Notice, in which case the Corporation shall (i) defer taking the pending action until the end of the Deferral Period, (ii) promptly notify from time to time each Morgan Stanley Stockholder holding shares of each proposed conversion and the proposed transactions, and (iii) effect the conversions requested by all Morgan Stanley Stockholders in response to the notices issued pursuant to this subparagraph (d)(iv) at the end of the Deferral Period. The Corporation shall deliver notice to each Morgan Stanley Stockholder (i) not later than 50 days after the end of each fiscal quarter, of the number of shares of each class of stock outstanding as of a date on or after the end of such fiscal quarter (which requirement may be satisfied by the Corporation by delivering periodic reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act") containing such information) and (ii) within 10 business days of the issuance of any shares of Class A Convertible Common Stock which, together with any other such issuances since the date of the last notice pursuant to clause (i) of this paragraph, results in the number of outstanding shares of Class A Convertible Common Stock increasing by three percent or more since the date of such last prior notice. (v) STOCK SPLITS; ADJUSTMENTS. If the Corporation shall in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by reverse stock split or otherwise) the outstanding shares of any class of Common Stock, the outstanding shares of each other class of Common Stock shall be subdivided or combined, as the case may be, to the same extent, share and share alike, and effective provision shall be made for the protection of the conversion rights hereunder. In case of any reorganization, reclassification or change of shares of any class of Common Stock (other than a change in par value or from par to no par value as a result of a subdivision or combination), or in case of any consolidation of the Corporation with one or more corporations or a merger of the Corporation with another corporation, each holder of a share of Common Stock, irrespective of class, shall have the right at any time thereafter, so long as the conversion right hereunder with respect to such share would exist had such event not occurred, to convert such share into the kind and amount of shares of stock and other securities and properties (including cash) receivable upon such reorganization, reclassification, change, consolidation, merger, sale, lease or other disposition by a holder of the number of shares of the class of Common Stock into which such shares of Common Stock might have been converted immediately prior to such reclassification, change, consolidation, merger, sale, lease or other disposition. In the event of such a reorganization, reclassification, change, consolidation, merger, sale, lease or other disposition, effective provision shall be made in the certificate of incorporation of the resulting or surviving corporation or otherwise for the protection of the conversion rights of the shares of Common Stock of each class that shall be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of shares of Common Stock into which such Common Stock might have been converted immediately prior to such event. -7- 8 (vi) RESERVATION OF SHARES. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of each class of Common Stock or its treasury shares, solely for the purposes of issuance upon the conversion of shares of any class of Common Stock, such number of shares of such class as are then issuable upon the conversion of all outstanding shares of each such class of Common Stock. (vii) PAYMENT OF TRANSFER TAXES. The issuance of certificates for shares of any class of Common Stock upon conversion of shares of any other class of Common Stock shall be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock; PROVIDED, HOWEVER, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Common Stock converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (e) NO PREEMPTIVE RIGHTS. The holders of shares of Common Stock shall have no preemptive or preferential rights of subscription to any shares of any class of capital stock of the Corporation or any securities convertible into or exchangeable for shares of any class of capital stock of the Corporation. (f) DEFINITIONS. As used herein, the following terms shall have meanings shown below: (i) "AFFILIATE" means with respect to any Person, any other Person, directly or indirectly controlling, controlled by or under common control with such Person, whether through the ownership of voting securities, by contract or otherwise, and shall include, in the case of any Person that is a trust or is acting through a nominee, any successor trust or nominee. (ii) "MORGAN STANLEY STOCKHOLDERS" means Morgan Stanley Capital Investors, L.P., a Delaware limited partnership, Morgan Stanley Capital Partners III, L.P., a Delaware limited partnership, The Morgan Stanley Leveraged Equity Fund II, L.P., a Delaware limited partnership, Morgan Stanley, Dean Witter, Discover & Co., a Delaware corporation, Affiliates of any of the foregoing Persons or any member of the Board of Directors who was nominated for election to the Board of Directors by any Morgan Stanley Stockholder. (iii) "MS PERCENTAGE" means 49% of the outstanding shares of Class A Convertible Common Stock. -8- 9 (iv) "PERSON" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or any agency or instrumentality thereof. (v) "TRANSFER" or "TRANSFERRED" means a transfer, sale, assignment, pledge, gift or other disposition. SECTION 4.3 PREFERRED STOCK. Shares of Preferred Stock of the Corporation may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the affirmative vote of a majority of the whole Board of Directors prior to the issuance of any shares thereof. Each such class or series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions, including the dividend rate, redemption price and liquidation preference, and may be convertible into, or exchangeable for, at the option of either the holder or the Corporation or upon the happening of a specified event, shares of any other class or classes or any other series of the same or any other class or classes of capital stock, or any debt securities, of the Corporation at such price or prices or at such rate or rates of exchange and with such adjustments as shall be stated and expressed in this Certificate of Incorporation or in any amendment hereto or in such resolution or resolutions providing for the issuance of such class or series of Preferred Stock as may be adopted from time to time by the affirmative vote of a majority of the whole Board of Directors prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the DGCL. The authority of the Board of Directors with respect to each series shall also include, but not be limited to, the determination of restrictions, if any, on the issue or reissue of any additional shares of Preferred Stock. ARTICLE V INDEMNIFICATION SECTION 5.1 INDEMNIFICATION. (a) RIGHT TO INDEMNIFICATION. Each director and officer of the Corporation who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any Proceeding (as hereinafter defined) because he or she is an Indemnified Person (as hereinafter defined) shall, and, at the election of the Corporation as determined by the Board of Directors, each employee and agent of the Corporation who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any Proceeding because he or she is an Indemnified Person may, be indemnified and held harmless by the Corporation to the fullest extent permitted under the DGCL, as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the DGCL permitted the Corporation to provide prior to such amendment). Such indemnification shall cover all expenses incurred by an Indemnified Person (including, but not limited to, attorneys' fees and other expenses of litigation) and all liabilities and losses (including, but not -9- 10 limited to, judgments, fines, ERISA or other excise taxes or penalties and amounts paid or to be paid in settlement) incurred by such person in connection therewith. Notwithstanding the foregoing, except with respect to indemnification specified in this Article V, the Corporation shall indemnify an Indemnified Person in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. For purposes of this Article V: (i) a "Proceeding" is an action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom including, without limitation, any such action, suit, proceeding or appeal by or in the right of the Corporation; (ii) an "Indemnified Person" is a person who is, was, or had agreed to become a director, officer, employee, agent or a Delegate, as defined herein, of the Corporation or the legal representative of any of the foregoing; (iii) a "Delegate" is (A) any employee of the Corporation or a subsidiary of the Corporation serving as a director or officer (or in a substantially similar capacity) of an entity or enterprise (x) in which the Corporation and its subsidiaries collectively own a 10% or greater equity interest or (y) the principal function of which is to service or benefit the Corporation or a subsidiary of the Corporation; (B) any employee of the Corporation or a subsidiary of the Corporation serving as a trustee or fiduciary of an employee benefit plan of the Corporation or any entity or enterprise referred to in clause (A); and (C) any person acting at the request of the Board of Directors of the Corporation in any capacity with any entity or enterprise other than the Corporation; and (iv) the "Corporation" means American Italian Pasta Company, a Delaware corporation, and its successors, but does not include any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger within the meaning of Section 145(h) of the DGCL. (b) EXPENSES. Expenses, including attorneys' fees, incurred by a director or officer of the Corporation indemnified pursuant to Section 5.1(a) in defending or otherwise being involved in a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding, including any appeal therefrom, upon receipt of an undertaking (the "Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation; provided that in connection with a Proceeding (or part thereof) initiated by such person, except a Proceeding authorized by Section 5.1(c), the Corporation shall pay said expenses in advance of final disposition only if such Proceeding (or part thereof) was authorized by the Board of Directors. A person to whom expenses are advanced pursuant hereto shall not be obligated to repay pursuant to the Undertaking until the final determination of any pending Proceeding in a court of competent jurisdiction concerning the right of such person to be indemnified or the obligation of such -10- 11 person to repay pursuant to the Undertaking. Such expenses, including attorneys' fees, incurred by other employees and agents of the Corporation may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (c) PROTECTION OF RIGHTS. If a claim under Section 5.1(a) is not promptly paid in full by the Corporation after a written claim has been received by the Corporation or if expenses pursuant to Section 5.1(b) of this Article have not been promptly advanced after a written request for such advancement accompanied by the Undertaking has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. If successful, in whole or in part, in such suit, such claimant shall also be entitled to be paid the reasonable expense thereof (including, without limitation, attorneys' fees). It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required Undertaking has been tendered to the Corporation) that indemnification of the claimant is prohibited by law, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination, if required, prior to the commencement of such action that indemnification of the claimant is proper is the circumstances, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that indemnification of the claimant is prohibited, shall be a defense to the action or create a presumption that indemnification of the claimant is prohibited. (d) MISCELLANEOUS. (i) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Article V shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-law, agreement, vote of stockholders or disinterested directors or otherwise. The Board of Directors shall have the authority, by resolution, to provide for such indemnification of employees or agents of the Corporation or others and for such other indemnification of directors, officers or Delegates as it shall deem appropriate. (ii) INSURANCE, CONTRACTS AND FUNDING. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of, or person serving in any other capacity with, the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expenses, liabilities or losses, whether or not the Corporation would have the power to indemnify such person against such expenses, liabilities or losses under the DGCL. The Corporation may enter into contracts with any director, officer or Delegate of the Corporation in furtherance of the provisions of this Article V and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect the advancing of expenses and indemnification as provided in this Article V. -11- 12 (iii) CONTRACTUAL NATURE. The provisions of this Article V shall be applicable to all Proceedings commenced or continuing after its adoption, whether such arise out of events, acts or omissions which occurred prior or subsequent to such adoption, and shall continue as to a person who has ceased to be a director, officer or Delegate and shall inure to the benefit of the heirs, executors and administrators of such person. This Article V shall be deemed to be a contract between the Corporation and each person who, at any time that this Article V is in effect, serves or agrees to serve in any capacity which entitles him to indemnification hereafter and any repeal or other modification of this Article, the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with this Article V or any repeal or modification of the DGCL or any other applicable law shall not limit any Indemnified Person's entitlement to the advancement of expenses or indemnification under this Article V for Proceedings then existing or later arising out of events, acts or omissions occurring prior to such repeal or modification, including, without limitation, the right to indemnification for Proceedings commenced after such repeal or modification to enforce this Article V with regard to Proceedings arising out of acts, omissions or events occurring prior to such repeal or modification or adoption of an inconsistent provision. ARTICLE VI LIABILITY OF A DIRECTOR SECTION 6.1 DIRECTOR LIABILITY. (a) A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived any improper personal benefit. (b) If the DGCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the DGCL, as so amended, without further action by either the Board of Directors or the stockholders of the Corporation. (c) Neither any amendment nor repeal of this Article VI, nor the adoption of any provision of the Corporation's Certificate of Incorporation inconsistent with this Article VI, shall eliminate or reduce the effect of this Article, in respect of any act or omission occurring, or any action or proceeding accruing or arising or that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ARTICLE VII MANAGEMENT OF THE AFFAIRS OF THE CORPORATION SECTION 7.1 MANAGEMENT OF THE AFFAIRS OF THE CORPORATION. (a) The business and affairs of the Corporation shall be managed by the Board of Directors, which may exercise all -12- 13 the powers of the Corporation and do all such lawful acts and things that are not conferred upon or reserved to the stockholders by law, by this Certificate of Incorporation or by the by-laws of the Corporation (the "By-Laws"). (b) Election of directors of the Corporation need not be by written ballot, unless required by the By-Laws. (c) The following provisions are inserted for the limitation and regulation of the powers of the Corporation and of its directors and stockholders: (i) AMENDMENT OF BY-LAWS. The By-Laws, or any of them, may be altered, amended or repealed, or new By-Laws may be made, but only to the extent any such alteration, amendment, repeal or new By-Law is not inconsistent with any provision of this Certificate of Incorporation as it may be amended from time to time, either by a majority of the whole Board of Directors or by the stockholders of the Corporation upon the affirmative vote of the holders of at least a 80% of the outstanding capital stock entitled to vote thereon. (ii) BOARD OF DIRECTORS. (A) The number of directors which shall constitute the whole Board of Directors shall be determined in the manner provided in the By-Laws of the Corporation. The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the entire Board permits, with the term of office of one class expiring each year. The initial division of the Board of Directors shall be made by the decision of a majority of the entire Board of Directors. The initial Class I directors elected by the stockholders of the Corporation shall hold office for a term expiring at the 1998 annual meeting of stockholders and until their successors shall be elected and qualified, subject to prior death, retirement, resignation or removal; the initial Class II directors elected by the stockholders of the Corporation shall hold office for a term expiring at the 1999 annual meeting of stockholders and until their successors shall be elected and qualified, subject to prior death, retirement, resignation or removal; and the initial Class III directors elected by the stockholders of the Corporation shall hold office for a term expiring at the 2000 annual meeting of stockholders and until their successors shall be elected and qualified, subject to prior death, retirement, resignation or removal. At each such annual meeting of stockholders and at each annual meeting thereafter, successors to the class of directors whose term expires at that meeting shall be elected for a term expiring at the third annual meeting following their election and until their successors shall be elected and qualified, subject to prior death, retirement, resignation or removal. (B) Subject to the rights of the holders of any series of preferred stock or any other class of capital stock of the Corporation (other than common -13- 14 stock) then outstanding, any vacancy in the Board of Directors, arising from death, retirement, resignation, removal, an increase in the number of directors or any other cause, may be filled by the Board of Directors, acting by a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director, the stockholders acting at an annual meeting or, if the vacancy is with respect to a director elected by a voting group, by action of any other directors elected by such voting group or such voting group. Each director chosen to fill a vacancy in the Board of Directors arising from the death, retirement, resignation, removal of a director shall be elected to complete the term of office of the director who is being succeeded. In the event of any increase or decrease in the authorized number of directors, (1) each director then serving as such shall nevertheless continue as director of the class of which he or she is a member until the expiration of such director's current term or his or prior death, retirement, resignation or removal and (2) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has more than one director more than any other class, and each director so elected shall hold office for the same term as the other members of the class to which the director is assigned. No decrease in the number of directors constituting the whole Board of Directors shall shorten the term of an incumbent director. (C) Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Section 4.3 hereof with respect to any directors elected by the holders of such class or series, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least two-thirds (66 2/3%) of the voting power of all of the shares of capital stock of the corporation then entitled to vote generally in the election of directors, voting together as a single class. The provisions of this subsection shall be the exclusive method for the removal of directors. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation or the resolution or resolutions adopted by the Board of Directors pursuant to Section 4.3 hereof applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Section 7.1(c) unless expressly provided by such terms. (iii) NOMINATION OF DIRECTORS. Only persons who are selected and recommended by the Board of Directors or the committee of the Board of Directors designated to make nominations, or who are nominated by stockholders in accordance with the procedures set forth in this Section 7.1(c)(iii), shall be eligible for election, or qualified to serve, as -14- 15 directors, except as may be otherwise provided in this Certificate of Incorporation with respect to the right of holders of Preferred Stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of individuals for election to the Board of Directors of the Corporation at any annual meeting or any special meeting of stockholders at which directors are to be elected may be made by any stockholder of the Corporation (x) who is a stockholder of record on the date of the giving of the notice provided for in this Section 7.1(c)(iii) and on the record date for the determination of stockholders entitled to vote at such meeting and (y) who complies with the procedures and requirements set forth in Section 7.1(c)(iii)(A) and (B) below. (A) Nominations by stockholders shall be made by written notice (a "Nomination Notice"), which shall set forth the following information: (i) as to each individual nominated, (a) the name, date of birth, business address and residence address of such individual, (b) the business experience during the past five years of such nominee, including his or her principal occupations and employment during such period, the name and principal business of any corporation or other organization in which such occupations and employment were carried on, and such other information as to the nature of his or her responsibilities and level of professional competence as may be sufficient to permit assessment of his or her prior business experience, (c) whether the nominee is or has ever been at any time a director, officer or owner of 5% or more of any class of capital stock, partnership interests or other equity interest of any corporation, partnership or other entity, (d) any directorships held by such nominee in any company with a class of securities registered pursuant to Section 12 of the Exchange Act, or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940, as amended, (e) whether, in the last five years, such nominee has been convicted in a criminal proceeding or has been subject to a judgment, order, finding or decree of any federal, state or other governmental entity, concerning any violation of federal, state or other law, or any proceeding in bankruptcy, which conviction, order, finding, decree or proceeding may be material to an evaluation of the ability or integrity of the nominee and (f) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and (ii) as to the Person submitting the Nomination Notice and any Person acting in concert with such Person, (a) the name and business address of such Person, (b) the name and address of such Person as they appear on the Corporation's books, (c) the class and number of shares of the Corporation that are beneficially owned by such Person, (d) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder and (e) any other information -15- 16 relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. A written consent to being named in a proxy statement as a nominee, and to serve as a director if elected, signed by the nominee, shall be filed with any Nomination Notice. (B) To be timely, Nomination Notices must be delivered to the Secretary and received at the principal executive offices of the Corporation (1) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; PROVIDED, HOWEVER, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, the Nomination Notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting is mailed or such public disclosure of the date of the annual meeting is made, whichever first occurs, or (2) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the 10th day following the day on which notice of the date of the special meeting is mailed or public disclosure of the date of the special meeting is made, whichever first occurs. (C) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures and requirements set forth in this Section 7.1(c)(iii). If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures and requirements, the chairman of the meeting shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. (iv) ABILITY OF STOCKHOLDERS TO ACT BY WRITTEN CONSENT. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with the DGCL and the By-Laws of the Corporation and may not be taken by written consent of stockholders without a meeting, unless the action to be effected by written consent of stockholders and the taking of such action by such written consent have expressly been approved in advance by the Board of Directors of the Corporation. (v) SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, only by (A) the Chairman of the Board of Directors, (B) the Chief Executive Officer or (C) the Board of Directors pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office. Special meetings of the stockholders of the Corporation may not be called by any other person or persons. Special meetings may be held at any place, within or without the State of Delaware, as determined by the person or persons calling such meeting. The only business that may be conducted at such a meeting, other than -16- 17 procedural matters and matters relating to the conduct of the meeting, shall matters relating to the purpose or purposes stated in the notice of meeting. (vi) CERTAIN BUSINESS COMBINATIONS. The Corporation has elected to be governed by Section 203 of the DGCL. ARTICLE VIII AMENDMENTS SECTION 8.1 AMENDMENTS. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, except as otherwise provided in Section 5.1(d)(3) or Section 6.1(c) hereof, in the manner now or hereafter prescribed by the DGCL, and all rights conferred upon stockholders herein are granted subject to this reservation; provided, however, that in addition to any vote of the holders of any class or series of capital stock of the Corporation required by law, this Certificate of Incorporation or a Certificate of Designation with respect to a series of Preferred Stock, the affirmative vote of the holders of shares of voting stock of the Corporation representing at least 80% of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to (i) reduce or eliminate the number of authorized shares of any capital stock set forth in Article IV, (ii) amend, repeal or adopt any provision inconsistent with Article V or Article VI which would diminish the rights of Indemnified Persons pursuant to Article V or the exculpation of directors pursuant to Article VI of this Certificate of Incorporation or (iii) amend or repeal or adopt any provision inconsistent with Section 7.1(c) of Article VII or this Article VIII of this Certificate of Incorporation. ARTICLE IX SEVERABILITY SECTION 9.1 In the event that any of the provisions of this Certificate of Incorporation (including any provision within a single article, section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law. This Amended and Restated Certificate of Incorporation shall become effective upon its filing with the Secretary of State of the State of Delaware. -17- 18 IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation of American Italian Pasta Company is signed on behalf of the Corporation by its Chairman of the Board of Directors and attested by its Secretary as of the ____ day of _____________, 1997. AMERICAN ITALIAN PASTA COMPANY By: _________________________ Name: Title: ATTEST By: _____________________ Name: Title: Secretary -18- EX-3.2 3 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.2 AMERICAN ITALIAN PASTA COMPANY AMENDED AND RESTATED BY-LAWS ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE IN DELAWARE. The registered office of American Italian Pasta Corporation (the "Corporation") in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, in the County of New Castle. The name of its registered agent at that address is The Corporation Trust Company. SECTION 2. OTHER OFFICES. The Corporation may, in addition to its registered office, establish and maintain such an office or offices, at such place or places within or without the State of Delaware, as the Board of Directors may deem necessary, desirable or expedient from time to time. ARTICLE II STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. Each meeting of the stockholders shall be held at the principal office of the Corporation or at such other place, within or without the State of Delaware, as shall be designated by the Board of Directors in the notice of meeting. SECTION 2. ANNUAL MEETING. The annual meeting of the stockholders shall be held pursuant to notice and at such date and time as shall be designated by the Board of Directors in the notice of meeting for the purpose of electing directors and for the transaction of such other business as may come before the meeting. SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, only by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office. Special meetings of the stockholders of the Corporation may not be called by any other person or persons. Special meetings may be held at any place, within or without the State of Delaware, as determined by the person or persons calling such meeting. The only business that may be conducted at such a meeting, other than procedural matters and matters relating to the conduct of the 1 2 meeting, shall be matters relating to the purpose or purposes stated in the notice of meeting. SECTION 4. NOTICE OF MEETINGS. The Secretary or an Assistant Secretary of the Corporation shall give written notice of every meeting of the stockholders to each stockholder of record entitled to vote at the meeting. Such notice shall be given not less than 10 days, nor more than 60 days, prior to the day named for the meeting, unless a different period of notice is required by law. Such notice shall be given either by regular mail, overnight courier, telegram or facsimile transmission, or by any other means comparable to any of the foregoing, to each stockholder at his address appearing on the books of the Corporation or supplied by him to the Corporation for the purpose of notice. Such notice shall specify the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is held. When a meeting is adjourned to another date, hour or place in accordance with the Delaware General Corporation Law, as amended (the "DGCL"), notice need not be given of the adjourned meeting if the date, hour and place thereof are announced at the meeting at which the adjournment is taken unless otherwise required by the DGCL. SECTION 5. WAIVER OF NOTICE. A waiver of notice in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted nor the purpose of the meeting need be specified in the waiver of notice of such meeting. Attendance of the person either in person or by proxy at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. SECTION 6. RECORD DATE. In order that the Corporation may determine the stockholders entitled (i) to notice of or to vote at any meeting of stockholders or any adjournments thereof, (ii) to receive payment of any dividend or other distribution, or allotment of any rights, or (iii) to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors, in advance, may fix a date as the record date for any such determination, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 days nor less than 10 days before the date of such meeting, nor more than 60 days prior to the date of any other action. A determination of the stockholders of record entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting taken pursuant to Article I, Section 8 hereof; provided, however, that the Board of Directors, 2 3 in its discretion, may fix a new record date for an adjourned meeting in accordance with the DGCL and these By-laws. If the Board of directors fixes a record date in accordance with the DGCL and these By-laws, only stockholders determined to be stockholders of record on the record date so fixed shall be entitled to notice of, or to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend or other distribution, or allotment of rights, or to exercise such rights in respect of such change, conversion or exchange of stock, or to participate in any such other lawful action, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION 7. LIST OF STOCKHOLDERS. At least 10 days before any meetings of the stockholders, the officer or transfer agent in charge of the stock transfer books of the Corporation shall prepare and make a complete alphabetical list of the stockholders entitled to vote at such meeting, which list shall show the address of each stockholder and the number of shares registered in the name of each stockholder. The list so prepared shall be maintained at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, and shall be open for inspection by any stockholder, for any purpose germane to the meeting, during ordinary business hours during a period of not less than 10 days prior to the meeting. The list shall also be produced and kept open at the meeting (during the entire duration thereof) and, except as otherwise provided by law, may be inspected by any stockholder or proxy of a stockholder who is present at such meeting. SECTION 8. QUORUM. The presence in person or by proxy of the holders of a majority of the votes represented by issued and outstanding shares entitled to vote at a stockholders' meeting shall constitute a quorum, except that the presence in person or by proxy of the holders of a majority of the issued and outstanding shares of each class or series of stock which is entitled to vote as a class or series at a stockholders' meeting shall constitute a quorum for any vote in which a vote of such class or series is required. When any meeting is convened the presiding officer, if directed by the Board, may adjourn the meeting if (a) no quorum is present for the transaction of business, or (b) the Board determines that adjournment is necessary or appropriate to enable the stockholders (i) to consider fully information which the Board determines has not been made sufficiently or timely available to stockholders or (ii) otherwise to exercise effectively their voting rights. At any such adjourned meeting at which there is a quorum, any business may be transacted that might have been transacted at the meeting originally called. 3 4 SECTION 9. STOCKHOLDER PROPOSALS. Proposals for a stockholder vote for consideration at any annual meeting or any special meeting of stockholders of the Corporation may be made by any stockholder of the Corporation (x) who is a stockholder of record on the date of the giving of the notice provided for in this Article II, Section 9 and on the record date for the determination of stockholders entitled to vote at such meeting and (y) who complies with the procedures and requirements set forth in subparagraphs (a) and (b) of this Article II, Section 9. (a) Condition of Submission to Stockholders. No proposal for a stockholder vote shall be submitted by a stockholder (a "Stockholder Proposal") to the Corporation's stockholders unless the stockholder submitting such proposal (the "Proponent") is a stockholder of record on the date of the giving of the notice provided for in this Article II, Section 9 and on the record date for the determination of stockholders entitled to vote at such meeting and has filed a written notice (a "Proposal Notice") setting forth with particularity (i) the names and business addresses of the Proponent and all persons or entities (collectively, the "Persons" and singularly, a "Person") acting in concert with the Proponent; (ii) the name and address of the Proponent and the Persons identified in clause (i), as they appear on the Corporation's books (if they so appear); (iii) the class and number of shares of the Corporation beneficially owned by the Proponent and the Persons identified in clause (i); (iv) a description of the Stockholder Proposal containing all material information relating thereto; and (v) such other information as the Board of Directors reasonably determines is necessary or appropriate to enable the Board of Directors and stockholders of the Corporation to consider the Stockholder Proposal. (b) Stockholder Proposal Notice. To be timely, Proposal Notices must be delivered to the Secretary and received at the principal executive offices of the Corporation (1) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, the Proposal Notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting is mailed or such public disclosure of the date of the annual meeting is made, whichever first occurs, or (2) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the 10th day following the day on which notice of the date of the special meeting is mailed or public disclosure of the date of the special meeting is made, whichever first occurs. 4 5 (c) Effect of Noncompliance. The presiding officer at any stockholders' meeting may determine that any Stockholder Proposal was not made in accordance with the procedures prescribed in these By-laws (the "By-laws") or is otherwise not in accordance with law, and if it is so determined, such officer shall so declare at the meeting and the Stockholder Proposal shall be disregarded. SECTION 10. VOTING POWER. Unless otherwise provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV of the Restated Certificate of Incorporation (the "Certificate of Incorporation") or by the DGCL, every stockholder of record of the Corporation (other than holders of Class B Convertible Non-Voting Common Stock, par value $.001 per share, except as set forth in the Certificate of Incorporation or as otherwise required by law) shall be entitled to vote, in person or by proxy, the shares of voting stock of every share of each class or series held of record by such stockholder. All questions shall be decided by the vote of the majority of the votes represented by issued and outstanding shares of capital stock present in person or represented by proxy and entitled to vote at any meeting, or if the voting is by class or series, a majority of the votes of each class or series of capital stock present in person or represented by proxy and entitled to vote at any meeting, unless otherwise specially provided by law or by the Certificate of Incorporation or these By-laws. Abstentions shall not be considered to be votes cast. SECTION 11. PROXIES. Every stockholder may vote either in person or by proxy. Every proxy shall be executed in writing by the stockholder or by his duly authorized attorney-in-fact and filed with the Secretary of the Corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given to the Secretary of the Corporation. No proxy shall be valid after eleven months from the date of its execution unless a longer time is expressly provided therein, but in no event shall a proxy, unless coupled with an interest, be voted on after three years from the date of its execution. A proxy shall not be revoked by the death or incapacity of the maker unless before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary of the Corporation. SECTION 12. INSPECTORS. Elections for directors need not be by ballot, except upon demand made by a stockholder at the election and before the voting begins. In advance of any meeting of stockholders, the Board of Directors shall appoint inspectors, who need not be stockholders, to act at such meeting and make a written report thereof. Such inspectors may include individuals who serve the Corporation in 5 6 other capacities, including, without limitation, as officers, employees, agents or representatives of the Corporation. The number of inspectors shall be one or three. One or more persons may be designated by the Board of Directors as alternate inspectors to replace any inspector who fails to act. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the Board of Directors in advance of the convening of the meeting, or at the meeting by the person or officer acting as chairman. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by the DGCL. SECTION 13. PRESIDING OFFICERS AND ORDER OF BUSINESS. All meetings of stockholders shall be called to order and presided over by the Chairman of the Board, or in his absence, by the Chief Executive Officer, President or highest ranking Vice President, or in the absence of all of them, by the Chief Financial Officer, or if none of these be present by a chairman designated by the Board of Directors. The Secretary of the Corporation shall act as secretary, but in the absence of the Secretary, the presiding officer may appoint a secretary. SECTION 14. PROCEDURAL MATTERS. At each meeting of stockholders, the chairman of the meeting shall fix and announce the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting and shall determine the order of business and all other matters of procedure. Except to the extent inconsistent with any such rules and regulations as adopted by the Board of Directors, the chairman of the meeting may establish rules, which need not be in writing, to maintain order for the conduct of the meeting, including, without limitation, restricting attendance to bona fide stockholders of record and their proxies and other persons in attendance at the invitation of the chairman and making rules governing speeches and debates. The chairman of the meeting acts in his or her absolute discretion and his or her rulings are not subject to appeal. SECTION 15. ABILITY OF STOCKHOLDERS TO ACT BY WRITTEN CONSENT. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of stockholders at an annual or special meeting duly noticed and called in accordance with the DGCL and these By-Laws of the Corporation and may not be taken by written consent of stockholders without a meeting, unless the action to be effected by written consent of stockholders and the taking of such action by such written consent have expressly been approved in advance by the Board of Directors of the Corporation. 6 7 ARTICLE III BOARD OF DIRECTORS SECTION 1. POWERS; QUALIFICATIONS; NUMBER AND TERM. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors of the Corporation. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The Board of Directors shall initially consist of [seven] persons; provided, however, that such number of directors may from time to time be increased and decreased by a duly adopted resolution of the Board of Directors but shall in no event be reduced to less than three. The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the entire Board permits, with the term of office of one class expiring each year. The initial division of the Board of Directors shall be made by the decision of a majority of the entire Board of Directors. The initial Class I directors elected by the stockholders of the Corporation shall hold office for a term expiring at the 1998 annual meeting of stockholders and until their successors shall be elected and qualified, subject to prior death, retirement, resignation or removal; the initial Class II directors elected by the stockholders of the Corporation shall hold office for a term expiring at the 1999 annual meeting of stockholders and until their successors shall be elected and qualified, subject to prior death, retirement, resignation or removal; and the initial Class III directors elected by the stockholders of the Corporation shall hold office for a term expiring at the 2000 annual meeting of stockholders and until their successors shall be elected and qualified, subject to prior death, retirement, resignation or removal. At each such annual meeting of stockholders and at each annual meeting thereafter, successors to the class of directors whose term expires at that meeting shall be elected for a term expiring at the third annual meeting following their election and until their successors shall be elected and qualified, subject to prior death, retirement, resignation or removal. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Incorporation or the resolution or resolutions adopted by the Board of Directors pursuant to Section 4.3 of the Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Section unless expressly provided by such terms. 7 8 SECTION 2. VACANCIES. Subject to the rights of the holders of any series of preferred stock or any other class of capital stock of the Corporation (other than common stock) then outstanding, any vacancy in the Board of Directors, arising from death, retirement, resignation, removal, an increase in the number of directors or any other cause, may be filled by the Board of Directors (excluding for this purpose directors designated by affiliates of Morgan Stanley Dean Witter Discover & Co. pursuant to the Amended and Restated Shareholders' Agreement dated as of ____________, 1997 to the extent, but only to the extent, that such directors would constitute a majority of such remaining directors) acting by a majority of the remaining directors then in office, although less than a quorum, or by a sole remaining director, the stockholders acting at an annual meeting or, if the vacancy is with respect to a director elected by a voting group, by action of any other directors elected by such voting group or such voting group. Each director chosen to fill a vacancy in the Board of Directors shall be elected to complete the term of office of the director who is being succeeded. In the event of any increase or decrease in the authorized number of directors, (a) each director then serving as such shall nevertheless continue as director of the class of which he or she is a member until the expiration of such director's current term or his or prior death, retirement, resignation or removal and (b) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has more than one director more than any other class, and each director so elected shall hold office for the same term as the other members of the class to which the director is assigned. No decrease in the number of directors constituting the whole Board of Directors shall shorten the term of an incumbent director. SECTION 3. REMOVAL OF DIRECTORS. Except as may be provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV of the Certificate of Incorporation with respect to any directors elected by the holders of such class or series, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class. The provisions of this subsection shall be the exclusive method for the removal of directors. SECTION 4. NOMINATION OF DIRECTORS. Only persons who are selected and recommended by the Board of Directors or the committee of the Board of Directors designated to make nominations, or who are nominated by stockholders in accordance with the procedures set 8 9 forth in this Article III, Section 4, shall be eligible for election, or qualified to serve, as directors, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of Preferred Stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of individuals for election to the Board of Directors of the Corporation at any annual meeting or any special meeting of stockholders at which directors are to be elected may be made by any stockholder of the Corporation (x) who is a stockholder of record on the date of the giving of the notice provided for in this Section 4 and on the record date for the determination of stockholders entitled to vote at such meeting and (y) who complies with the procedures and requirements set forth in subparagraphs (a) and (b) this Article III, Section 4. (a) Nominations by stockholders shall be made by written notice (a "Nomination Notice"), which shall set forth the following information: (i) as to each individual nominated, (a) the name, date of birth, business address and residence address of such individual, (b) the business experience during the past five years of such nominee, including his or her principal occupations and employment during such period, the name and principal business of any corporation or other organization in which such occupations and employment were carried on, and such other information as to the nature of his or her responsibilities and level of professional competence as may be sufficient to permit assessment of his or her prior business experience, (c) whether the nominee is or has ever been at any time a director, officer or owner of 5% or more of any class of capital stock, partnership interests or other equity interest of any corporation, partnership or other entity, (d) any directorships held by such nominee in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940, as amended, (e) whether, in the last five years, such nominee has been convicted in a criminal proceeding or has been subject to a judgment, order, finding or decree of any federal, state or other governmental entity, concerning any violation of federal, state or other law, or any proceeding in bankruptcy, which conviction, order, finding, decree or proceeding may be material to an evaluation of the ability or integrity of the nominee and (f) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder; and (ii) as to the Person submitting the Nomination Notice and any Person acting in concert with such Person, (a) the name and business address of such Person, (b) the name and address of such Person as they appear on the Corporation's books, (c) the class and number of shares of the Corporation that are beneficially owned by such Person, (d) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to 9 10 which the nomination(s) are to be made by such stockholder and (e) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. A written consent to being named in a proxy statement as a nominee, and to serve as a director if elected, signed by the nominee, shall be filed with any Nomination Notice. (b) To be timely, Nomination Notices must be delivered to the Secretary and received at the principal executive offices of the Corporation (1) in the case of an annual meeting, not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, the Nomination Notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting is mailed or such public disclosure of the date of the annual meeting is made, whichever first occurs, or (2) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the 10th day following the day on which notice of the date of the special meeting is mailed or public disclosure of the date of the special meeting is made, whichever first occurs. (c) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures and requirements set forth in this Section this Article III, Section 4. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures and requirements, the chairman of the meeting shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. SECTION 5. PLACE OF MEETINGS. The Board of Directors may hold annual, regular and special meetings, and have an office or offices, either within or outside the State of Delaware, at such place as the Board of Directors from time to time deems advisable. SECTION 6. ANNUAL AND REGULAR MEETINGS. The Board of Directors shall, without notice, hold an annual meeting immediately after the annual meeting of the stockholders, or after the last adjournment thereof, and shall hold other regular meetings at such time and place as it may determine. No notice to the newly elected directors of such annual meeting shall be necessary for such meeting to be lawful, provided a quorum is present. 10 11 SECTION 7. SPECIAL MEETINGS. The Board of Directors shall hold such special meetings as shall be called by the Chairman of the Board, Chief Executive Officer, President, or Vice President, or Secretary, or any two directors. Each such meeting shall be held at such time and place as shall be designated in the notice of meeting. SECTION 8. NOTICE OF MEETINGS. Notice of the date, time and place of each meeting, except the annual meeting, of the Board of Directors shall be mailed by regular mail to each director, at his address appearing on the books of the Corporation or supplied by the director to the Corporation for the purpose of notice ("designated address"), at least six days before the meeting; or sent by overnight courier to each director at his designated address at least two days before the meeting (with delivery scheduled to occur no later than the day before the meeting); or given orally by telephone or other means, or by telegraph or facsimile transmission, or by any other means comparable to any of the foregoing, to each director at his designated address not later than the day before the day on which such meeting is to be held or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances; provided, however, that if less than five days' notice is provided and one-third of the directors then in office object in writing prior to or at the commencement of the meeting, such meeting shall be postponed until five days after such notice was given pursuant to this sentence (or such shorter period to which a majority of those who objected in writing agree), provided that notice of such postponed meeting shall be given in accordance with this Article III, Section 8. The notice of the meeting shall state the general purpose of the meeting, but other routine business may be conducted at the meeting without such matter being stated in the notice. SECTION 9. WAIVER OF NOTICE. A waiver of written notice in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of a person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened, and any such person so states his purpose in attending such meeting and refrains from participation in the business of the meeting. SECTION 10. QUORUM. Except as otherwise provided in the Certificate of Incorporation, these By-laws and the DGCL, a majority of the directors in office shall be necessary at any meeting of the Board 11 12 in order to constitute a quorum for the transaction of business at such meeting, and the affirmative vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present thereat. Notice of any adjourned meeting need not be given. SECTION 11. PRESIDING OFFICER AND ORDER OF BUSINESS. All meetings of the Board of Directors shall be called to order and presided over by the Chairman of the Board, or in his absence, by a member of the Board of Directors selected by the members present. The Secretary of the Corporation shall act as secretary, but in the absence of the Secretary, the presiding officer may appoint a secretary. SECTION 12. ACTION BY BOARD WITHOUT FORMAL MEETING. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee, as the case may be. SECTION 13. COMPENSATION. Directors, as such, shall receive such compensation and reimbursement for expenses as the Board of Directors may by resolution allow. Directors shall also be entitled to receive such compensation for services rendered to the Corporation in any capacity other than as directors, as may be provided from time to time by resolution of the Board of Directors. SECTION 14. RESIGNATION. Any director, member of a committee, or other officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board or Secretary of the Corporation. Such resignation shall be effective at the time specified therein, or, if no time be specified, at the time of its receipt by the Board of Directors or such officer, and the acceptance of the resignation shall not be necessary to make it effective. Resignations not submitted in writing may be evidenced by a written acknowledgement of receipt thereof signed by the receiving director or officer of the Corporation or by acknowledgement of receipt thereof in the minutes of a subsequent stockholders' or directors' meeting. 12 13 SECTION 15. TELEPHONIC MEETINGS AND PARTICIPATION. Members of the Board of Directors or any committee designated thereby may participate in any meeting of such Board of Directors or committee by means of conference telephone or similar communications equipment by which all persons participating can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE IV COMMITTEES SECTION 1. COMMITTEES GENERALLY. The Board of Directors may, by resolutions passed by a majority of the members of the Board of Directors then in office, designate members of the Board of Directors to constitute committees that, except as otherwise provided in Sections 2 and 3 of this Article IV, in each case, shall consist of such number of directors, and shall have and may execute such powers, as is permitted by law and specified in the respective resolutions appointing them. Any such committee may fix its rules of procedure, determine its manner of acting and the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given, unless these By-laws, or the Board of Directors by resolution, shall provide otherwise. Unless otherwise provided by the Board of Directors or such committee, the quorum, voting and other procedures shall be the same as those applicable to actions taken by the Board of Directors. A majority of the members of the Board of Directors then in office shall have the power to change the membership of any such committee at any time, to fill vacancies therein and to discharge any such committee or to remove any member thereof, either with or without cause, at any time. SECTION 2. AUDIT COMMITTEE. The Audit Committee shall consist of such number of directors, who shall not be officers or employees of the Corporation or any of its affiliates, not less than two, as shall from time to time be determined by the Board of Directors. The Audit Committee shall each year make a recommendation, based on a review of qualifications, to the Board of Directors for the appointment of independent public accountants to audit the financial statements of the Corporation and to perform such other duties as the Board of Directors may from time to time prescribe. As part of such review of qualifications, the Audit Committee shall consider management's plans for engaging the independent public accountants for management advisory services to determine whether such services could impair the public accountants' independence. The Audit Committee shall examine and make recommendations to the Board of Directors with respect to the scope of audits conducted by the Corporation's independent public accountants and internal auditors. The Audit Committee shall review all recommendations made by the Corporation's independent public accountants and internal auditors to the Audit Committee or 13 14 the Board of Directors with respect to the accounting methods and the system of internal control used by the Corporation, and shall advise the Board of Directors with respect thereto. The Audit Committee shall review reports from the Corporation's independent public accountants and internal auditors concerning compliance by management with governmental laws and regulations and with the Corporation's policies relating to ethics, conflicts of interest and disbursements of funds. The Audit Committee shall meet with the Corporation's independent public accountants and/or internal auditors without management present whenever the Audit Committee shall deem it appropriate. SECTION 3. COMPENSATION COMMITTEE. The Compensation Committee shall consist of such number of directors, who shall not be officers or employees of the Corporation or any of its affiliates, not less than two, as shall from time to time be determined by the Board of Directors. As authorized by the Board of Directors, the Compensation Committee shall make recommendations to the Board of Directors with respect to the administration of the salaries, bonuses, and other compensation to be paid to key employees and officers of the Corporation, including the terms and conditions of their employment, and shall administer all stock option and other benefit plans (except with respect to participation by executive officers and unless otherwise specified in plan documents) affecting key employees' and officers' direct and indirect remuneration. ARTICLE V OFFICERS AND AGENTS SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, a Chief Financial Officer and a Secretary, all of whom shall be elected by the Board of Directors. In addition, the Board of Directors may elect one or more Vice Presidents, Assistant Secretaries or Assistant Treasurers, or appoint such other additional officers and agents as they may deem advisable. Any two or more offices may be held by the same person except the offices of President and Secretary. The officers shall be elected each year at the annual meeting of the Board of Directors which shall be held each year pursuant to Article III, Section 6 hereof. The Board of Directors may appoint, or may empower the Chief Executive Officer to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these By-laws or as the Board of Directors may from time to time determine. 14 15 SECTION 2. TERM. Each officer and each agent shall hold office until his successor is elected or appointed and qualified or until his death, resignation or removal by the Board of Directors. SECTION 3. AUTHORITY, DUTIES AND COMPENSATION. All elected or appointed officers and agents shall have such authority and perform such duties as may be provided in the By-laws or as may be determined by the Board of Directors or the Chairman of the Board. They shall receive such compensation for their services as may be determined by the Board of Directors, or by the Chairman of the Board with respect to all officers and agents subordinate to him. Notwithstanding any other provisions of these By-laws, the Board of Directors shall have power from time to time by resolution to prescribe by what officers or agents particular documents or instruments or particular classes of documents or instruments shall be signed, countersigned, endorsed or executed, provided, however, that any person, firm or corporation shall be entitled to accept and to act upon any document or instrument signed, countersigned, endorsed or executed by officers or agents of the company pursuant to the provisions of these By-laws unless prior to receipt of such document or instrument such person, firm or corporation has been furnished with a certified copy of a resolution of the Board of Directors prescribing a different signature, countersignature, endorsement or execution. SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall serve as the Corporation's general manager, and shall have general supervision, direction and control of the Corporation's business and its officers, and, if present, preside at meetings of the stockholders and the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the Board of Directors or as may be prescribed by these By-laws. If there is no Chief Executive Officer, then the Chairman of the Board shall also be the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in Article V, Section 5 of these By-laws. The Chairman of the Board shall report to the Board of Directors. SECTION 5. CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in 15 16 the chief executive officer of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these By-laws. SECTION 6. PRESIDENT. The president may assume and perform the duties of the Chief Executive Officer in the absence or disability of the Chief Executive Officer or whenever the office of the Chief Executive Officer is vacant. The president of the Corporation shall exercise and perform such powers and duties as may from time to time be assigned to him by the Board of Directors or as may be prescribed by these By-laws. The president shall have authority to execute in the name of the corporation bonds, contracts, deeds, leases and other written instruments to be executed by the Corporation. In the absence or nonexistence of the Chairman of the Board and Chief Executive Officer, he shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board and the Chief Executive Officer, at all meetings of the Board of Directors and shall perform such other duties as the Board of Directors may from time to time determine. SECTION 7. CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the Chief Executive Officer and directors, whenever they request it, an account of all of his or her transactions as chief financial officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these By-laws. SECTION 8. VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these By-laws, the Chairman of the Board or the Chief Executive Officer. 16 17 SECTION 9. SECRETARY. The Secretary shall give or cause to be given all required notices of meetings of stockholders and of the Board of Directors, shall attend such meetings when practicable, shall record and keep the minutes and all other proceedings thereof, shall attest such records after every meeting by his signature, shall safely keep all documents and papers which shall come into his possession and shall truly keep the books and accounts of the Corporation appertaining to his office. In the absence or disability of the Secretary, any Assistant Secretary shall have authority and perform the duties of the Secretary. SECTION 10. RESIGNATION AND REMOVAL OF OFFICERS. Any executive officer of the Corporation may be removed, either for cause or without cause, by the affirmative vote of a majority of the full Board of Directors. Other officers and agents may be removed either for cause or without cause by the Board of Directors, the Chairman of the Board or the Chief Executive Officer. Removal of an executive officer or other officer or agent in accordance herewith shall be without prejudice to the contract rights, if any, of the person so removed. Any officer may resign at any time by written notice to the Corporation. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. SECTION 11. VACANCIES. Vacancy in any office or position by reason of death, resignation, removal, disqualification or any other cause shall be filled in the manner provided in Article V, Section 1 hereof for regular appointment to such office. Unless earlier removed pursuant to Article V, Section 10, any officer appointed by the Board to fill any such vacancy shall serve only until such time as the unexpired term of his predecessor expires unless reappointed by the Board. ARTICLE VI INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 1. RIGHT TO INDEMNIFICATION. Each director and officer of the Corporation who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any Proceeding (as hereinafter defined) because he or she is an Indemnified Person (as hereinafter defined) shall, and, at the election of the Corporation as determined by the Board of Directors, each employee and agent of the Corporation who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any Proceeding because he or she is an Indemnified Person may, be 17 18 indemnified and held harmless by the Corporation to the fullest extent permitted under the DGCL, as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the DGCL permitted the Corporation to provide prior to such amendment). Such indemnification shall cover all expenses incurred by an Indemnified Person (including, but not limited to, attorneys' fees and other expenses of litigation) and all liabilities and losses (including, but not limited to, judgments, fines, ERISA or other excise taxes or penalties and amounts paid or to be paid in settlement) incurred by such person in connection therewith. Notwithstanding the foregoing, except with respect to indemnification specified in this Article VI, the Corporation shall indemnify an Indemnified Person in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. For purposes of this Article VI: (i) a "Proceeding" is an action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom including, without limitation, any such action, suit, proceeding or appeal by or in the right of the Corporation; (ii) an "Indemnified Person" is a person who is, was, or had agreed to become a director, officer, employee, agent or a Delegate, as defined herein, of the Corporation or the legal representative of any of the foregoing; (iii) a "Delegate" is (A) any employee of the Corporation or a subsidiary of the Corporation serving as a director or officer (or in a substantially similar capacity) of an entity or enterprise (x) in which the Corporation and its subsidiaries collectively own a 10% or greater equity interest or (y) the principal function of which is to service or benefit the Corporation or a subsidiary of the Corporation; (B) any employee of the Corporation or a subsidiary of the Corporation serving as a trustee or fiduciary of an employee benefit plan of the Corporation or any entity or enterprise referred to in clause (A); and (C) any person acting at the request of the Board of Directors of the corporation in any capacity with any entity or enterprise other than the Corporation; and (iv) the "Corporation" means American Italian Pasta Company, a Delaware corporation, and its successors, but does not include any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger within the meaning of Section 145(h) of the DGCL. 18 19 SECTION 2. EXPENSES. Expenses, including attorneys' fees, incurred by a director or officer indemnified pursuant to Article VI, Section 1 in defending or otherwise being involved in a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding, including any appeal therefrom, upon receipt of an undertaking (the "Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation; provided that in connection with a Proceeding (or part thereof) initiated by such person, except a Proceeding authorized by Article VI, Section 3, the Corporation shall pay said expenses in advance of final disposition only if such Proceeding (or part thereof) was authorized by the Board of Directors. A person to whom expenses are advanced pursuant hereto shall not be obligated to repay pursuant to the Undertaking until the final determination of any pending Proceeding in a court of competent jurisdiction concerning the right of such person to be indemnified or the obligation of such person to repay pursuant to the Undertaking. Such expenses, including attorneys' fees, incurred by other employees and agents of the Corporation may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. SECTION 3. PROTECTION OF RIGHTS. If a claim under Article VI, Section 1 is not promptly paid in full by the Corporation after a written claim has been received by the Corporation or if expenses pursuant to Article VI, Section 2 of this Article have not been promptly advanced after a written request for such advancement accompanied by the Undertaking has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. If successful, in whole or in part, in such suit, such claimant shall also be entitled to be paid the reasonable expense thereof (including, without limitation, attorneys' fees). It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required Undertaking has been tendered to the Corporation) that indemnification of the claimant is prohibited by law, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination, if required, prior to the commencement of such action that indemnification of the claimant is proper is the circumstances, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that indemnification of the claimant is prohibited, shall be a defense to the action or create a presumption that indemnification of the claimant is prohibited. 19 20 SECTION 4. MISCELLANEOUS. (a) Non-Exclusivity of Rights. The rights conferred on any person by this Article VI shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The Board of Directors shall have the authority, by resolution, to provide for such indemnification of employees or agents of the Corporation or others and for such other indemnification of directors, officers or Delegates as it shall deem appropriate. (b) Insurance, Contracts and Funding. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of, or person serving in any other capacity with, the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expenses, liabilities or losses, whether or not the Corporation would have the power to indemnify such person against such expenses, liabilities or losses under the DGCL. The Corporation may enter into contracts with any director, officer or Delegate of the Corporation in furtherance of the provisions of this Article VI and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect the advancing of expenses and indemnification as provided in this Article VI. (c) Contractual Nature. The provisions of this Article VI shall be applicable to all Proceedings commenced or continuing after its adoption, whether such arise out of events, acts or omissions which occurred prior or subsequent to such adoption, and shall continue as to a person who has ceased to be a director, officer or Delegate and shall inure to the benefit of the heirs, executors and administrators of such person. This Article VI shall be deemed to be a contract between the Corporation and each person who, at any time that this Article VI is in effect, serves or agrees to serve in any capacity which entitles him to indemnification hereafter and any repeal or other modification of this Article or any repeal or modification of the DGCL or any other applicable law shall not limit any Indemnified Person's entitlement to the advancement of expenses or indemnification under this Article VI for Proceedings then existing or later arising out of events, acts or omissions occurring prior to such repeal or modification, including, without limitation, the right to indemnification for Proceedings commenced after such repeal or modification to enforce this Article VI with regard to Proceedings arising out of acts, omissions or events occurring prior to such repeal or modification. (d) Severability. If this Article VI or any portion hereof shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, such invalidity or 20 21 unenforceability shall not affect the other provisions hereof, and this Article VI shall be construed in all respects as if such invalid or unenforceable provisions had been omitted therefrom. ARTICLE VII SHARES OF CAPITAL STOCK SECTION 1. SHARE CERTIFICATES. Every holder of stock in the Corporation shall be entitled to a certificate or certificates, to be in such form as the Board of Directors may from time to time prescribe, signed by the President or a Vice President and by the Secretary or Treasurer or an Assistant Secretary or Assistant Treasurer, and where signed by a transfer agent or an assistant transfer agent by a registrar the signature of such officers of the Corporation may be facsimile. Each such certificate shall exhibit the name of the registered holder thereof, the number and class of shares and the designation of the series, if any, which the certificate represents and the number of shares represented thereby. The Board of Directors may, if it so determines, direct that certificates for shares of stock of the Corporation be signed by a transfer agent and/or registered by a registrar, in which case such certificates shall not be valid until so signed and/or registered. In case any officer of the Corporation who shall have signed, or whose facsimile signature shall have been used on any certificate for shares of stock of the Corporation, shall cease to be such officer, whether because of death, resignation or otherwise, before such certificate shall have been delivered, it may be delivered by the Corporation as though the person who signed such certificate or whose facsimile signature shall have been used thereon had not ceased to be such officer. SECTION 2. TRANSFERS OF SHARES. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof or by his attorney thereunto authorized by an instrument duly executed and witnessed and filed with the Corporation, and on surrender of the certificate or certificates for such shares properly endorsed and evidence of the payment of all taxes imposed upon such transfer. Every certificate surrendered for transfer shall be cancelled and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so cancelled. SECTION 3. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint any one or more qualified banks, trust companies or other corporations organized under any law of any state of the United States or under the laws of the United States as agent or agents for the Corporation in the transfer of the stock of the Corporation and likewise may appoint any one or more qualified banks, trust companies or other corporations as registrar or registrars of the stock of the Corporation. 21 22 SECTION 4. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. New certificates for shares of stock may be issued to replace certificates lost, stolen, destroyed or mutilated upon such terms and conditions, which may but need not include the giving of a satisfactory bond of indemnity, as the Board of Directors may from time to time determine. SECTION 5. HOLDERS OF RECORD. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder and owner in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the laws of the State of Delaware. SECTION 6. TREASURY SHARES. Shares of the Corporation's stock held in its treasury shall not be voted, directly or indirectly, at any meeting. SECTION 7. STOCKHOLDER AGREEMENTS. Shares of stock of the Corporation may be subject to one or more agreements abridging, limiting or restricting the rights of any one or more stockholders to sell, assign, transfer, mortgage, pledge or hypothecate any or all of the stock of the Corporation held by them, or may be subject to one or more agreements providing a purchase option with respect to any shares of stock of the Corporation. If such agreements exist, all certificates evidencing shares of stock subject to such abridgements, limitations, restrictions or options shall have reference thereto endorsed on such certificate and such stock shall not thereafter be transferred on the books of the Corporation except in accordance with the terms and conditions of such agreement or agreements. Copies of such agreement or agreements shall be maintained at the offices of the Corporation. ARTICLE VIII GENERAL PROVISIONS SECTION 1. CORPORATE SEAL. The Board of Directors shall prescribe the form of a suitable corporate seal, which shall contain the full name of the Corporation and the year and state of incorporation. Such seal may be used by causing it or a facsimile or reproduction thereof to be affixed to or placed upon the document to be sealed. 22 23 SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall end on the last Friday in September in each year or shall begin and end on such other days as shall be fixed by resolution of the Board of Directors. SECTION 3. CORPORATE RECORDS. The Corporation may maintain its corporate books and records at such place or places within or without the State of Delaware as the Board of Directors may deem necessary, desirable or expedient from time to time. SECTION 4. CHECKS, DRAFTS AND NOTES. All checks, drafts and other orders for the payment of money, notes and other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall be determined, from time to time, by resolution of the Board. SECTION 5. EXECUTION OF PROXIES. The Chairman of the Board or Chief Executive Officer or, in the absence or disability of both of them, any Vice President, may authorize, from time to time, the execution and issuance of proxies to vote shares of stock or other securities of other corporations held of record by the Corporation and the execution of consents to action taken or to be taken by any such corporation. All such proxies and consents, unless otherwise authorized by the Board, shall be signed in the name of the Corporation by either the Chairman of the Board, Chief Executive Officer or any Vice President. SECTION 6. CONSTRUCTION. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these By-laws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both an entity and a natural person. ARTICLE IX AMENDMENTS SECTION 1. AMENDMENTS. The Board of Directors shall have power without the assent or vote of the stockholders to make, alter, amend, change, add to or repeal the By-laws of the Corporation. The stockholders shall also have the power to make, alter, amend, change, add to or repeal the 23 24 By-laws of the Corporation; provided, however, that in addition to any vote of the holders of any class or series of capital stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to make, alter, amend, change, add to or repeal the By-laws of the Corporation. 24 EX-10.1 4 CREDIT AGREEMENT 1 EXHIBIT 10.1 ============================================================ CREDIT AGREEMENT among AMERICAN ITALIAN PASTA COMPANY, VARIOUS BANKS, BANKERS TRUST COMPANY, as ADMINISTRATIVE AGENT and SYNDICATION AGENT and MORGAN STANLEY SENIOR FUNDING, INC., as DOCUMENTATION AGENT __________________________________ Dated as of October 30, 1992 and Amended and Restated as of July 1, 1994 and Amended and Restated as of February 26, 1996 and further Amended and Restated as of April 11, 1997 ============================================================ 2
Page Section 1. Amount and Terms of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.01 The Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.02 Minimum Amount of Each Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.03 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.04 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.05 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.06 Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.07 Pro Rata Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.08 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.09 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.10 Increased Costs; Illegality; etc. . . . . . . . . . . . . . . . . . . . . . . . . 12 1.11 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.12 Replacement of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.01 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.02 Minimum Stated Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.03 Letter of Credit Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.04 Letter of Credit Participations . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.05 Agreement to Repay Letter of Credit Drawings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.06 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 3. Commitment Fees; Fees; Reductions of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.01 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3.02 Voluntary Termination of Unutilized Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.03 Mandatory Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 4. Prepayments; Payments; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.01 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.02 Mandatory Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.03 Method and Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.04 Net Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(i) 3 Page Section 5. Conditions Precedent to the Restatement Effective Date and to All Credit Events on the Restatement Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.01 Execution of Agreement; Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.02 Consummation of the Equity Financing . . . . . . . . . . . . . . . . . . . . . . . . 41 5.03 Repayment of Certain Existing Loans; Payment of Fees; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.04 Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.05 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.06 Corporate Documents; Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.07 Employee Benefit Plans; Shareholders' Agreements; Collective Bargaining Agreements; Tax Sharing Agreements; Debt Agreements; CPC Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.08 Capital Expenditure Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.09 Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.10 Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.11 Mortgages; Title Insurance; Appraisal . . . . . . . . . . . . . . . . . . . . . . . 45 5.12 Adverse Change; Approvals; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.14 Fees; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.15 Asset Appraisal; Insurance; Solvency Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.16 Consent Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.17 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 5.18 Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 5.19 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 5.20 Borrowing Base Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 5A. Conditions Precedent to the Incurrence of D Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5A.01 Restatement Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5A.02 D Term Loan Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5A.03 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5A.04 Consummation of the Additional Equity Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 6. Conditions Precedent To the Restatement Effective Date and To All Credit Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(ii) 4 Page 6.01 No Default; Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 6.02 Notice of Borrowing; Letter of Credit Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 6.03 Adverse Change; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 6.04 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 6.05 Subsequent Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7. Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.01 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.02 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.03 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7.04 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 7.07 True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.08 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . 55 7.09 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.10 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 7.11 Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 7.12 Representations and Warranties in Documents and in Existing Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 7.13 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 7.14 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 7.15 Compliance with Statutes; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 7.16 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 7.17 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . 59 7.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 7.19 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.20 Intellectual Property; Licenses; Franchises; Formulas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 7.21 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 7.22 Restrictions on or Relating to Subsidiaries . . . . . . . . . . . . . . . . . . . . 61 7.23 Enterprise Zone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 7.24 Purchase or Other Commitments and Outstanding Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 7.25 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(iii) 5 Page 7.26 Employment Agreements and Management Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 8. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 8.01 Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 8.02 Books, Records and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 8.03 Maintenance of Property, Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 67 8.04 Corporate Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.05 Compliance with Statutes, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.06 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . 68 8.07 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 8.08 End of Fiscal Years; Fiscal Quarters . . . . . . . . . . . . . . . . . . . . . . . . 70 8.09 Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 8.10 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 8.11 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 8.12 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 8.13 Additional Security; Further Assurances . . . . . . . . . . . . . . . . . . . . . . 71 8.14 Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 8.15 Capital Expenditure Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 9. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 9.01 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 9.02 Consolidation; Merger; Purchase or Sale of Assets; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 9.03 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 9.04 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 9.05 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 9.06 Advances, Investments and Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 79 9.07 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 9.08 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 9.09 Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 9.10 Cash Flow Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 9.11 Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 9.12 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. . . . . . . . . . . . . . . . . . . . . . . . . . 83 9.13 Limitation on Certain Restrictions on Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 9.14 Limitation on Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . . 84 9.15 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
(iv) 6 Page 9.16 Limitation on Creation of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 85 Section 10. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.02 Representations; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.03 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 10.04 Default Under Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 10.05 Bankruptcy; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 10.06 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 10.07 Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 10.08 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 10.09 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 11. Definitions and Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 88 11.01 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Section 12. The Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 12.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 12.02 Nature of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 12.03 Lack of Reliance on the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 12.04 Certain Rights of the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 12.05 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 12.06 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 12.07 The Administrative Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 12.08 Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 12.09 Resignation by the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . 121 12.10 Documentation Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Section 13. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 13.01 Payment of Expenses; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 13.02 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 13.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 13.04 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 13.05 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 13.06 Payments Pro Rata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 13.07 Calculations; Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
(v) 7 Page 13.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 13.10 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 13.11 Headings Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 13.12 Amendment or Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 13.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 13.14 Domicile of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 13.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 13.16 Addition of New Banks; Original Notes . . . . . . . . . . . . . . . . . . . . . . . . 133 13.17 Post Closing Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 SCHEDULE I Commitments SCHEDULE II Existing Standby Letters of Credit SCHEDULE III Real Property SCHEDULE IV Material Liabilities SCHEDULE V Properties SCHEDULE VI Environmental Matters SCHEDULE VII Intellectual Property Rights SCHEDULE VIII Existing Obligations SCHEDULE IX Insurance SCHEDULE X Existing Liens SCHEDULE XI Bank Addresses EXHIBIT A Form of Notice of Borrowing EXHIBIT B-1 Form of A Term Note EXHIBIT B-2 Form of B Term Note EXHIBIT B-3 Form of C Term Note EXHIBIT B-4 Form of D Term Note EXHIBIT B-5 Form of Revolving Note EXHIBIT C Form of Letter of Credit Request EXHIBIT D Form of Section 4.04(b)(ii) Certificate EXHIBIT E Form of Opinion of Sonnenschein Nath & Rosenthal EXHIBIT F Form of Officers' Certificate EXHIBIT G Form of Pledge Agreement EXHIBIT H Form of Security Agreement EXHIBIT I Form of Officer's Solvency Certificate EXHIBIT J Form of Consent Letter EXHIBIT K Form of Pro forma Balance Sheet EXHIBIT L Projections
(vi) 8 EXHIBIT M Form of D Term Loan Certificate EXHIBIT N Form of Borrowing Base Certificate EXHIBIT O Form of Assignment and Assumption Agreement (vii) 9 CREDIT AGREEMENT, dated as of October 30, 1992, amended and restated as of July 1, 1994, further amended and restated as of February 26, 1996 and further amended and restated as of April 11, 1997, among AMERICAN ITALIAN PASTA COMPANY, a corporation organized and existing under the laws of the State of Delaware (the "Company"), the Banks party hereto from time to time, BANKERS TRUST COMPANY, as Administrative Agent and Syndication Agent and MORGAN STANLEY SENIOR FUNDING, INC., as Documentation Agent (all capitalized terms used herein and defined in Section 11 are used herein as therein defined). W I T N E S S E T H : WHEREAS, the Company, the Existing Banks and the Existing Agent are parties to a Credit Agreement, dated as of October 30, 1992, amended and restated as of July 1, 1994 and further amended and restated as of February 26, 1996 (as the same has been amended, modified or supplemented to, but not including, the Restatement Effective Date, the "Existing Credit Agreement"); WHEREAS, the Company has requested that the Existing Credit Agreement be further amended and restated and the Banks and the Administrative Agent are willing to amend and restate the same upon the terms and conditions set forth below. NOW, THEREFORE, the parties hereto agree that the Existing Credit Agreement shall be and hereby is further amended and restated in its entirety as follows: Section 1. Amount and Terms of Credit. 1.01 The Commitments. (a) Subject to and upon the terms and conditions set forth herein, each Bank with an A Term Loan Commitment severally agrees to make, on the Original Restatement Effective Date, a term loan (each, an "A Term Loan" and, collectively, the "A Term Loans") to the Company, which A Term Loans (i) shall be made and initially maintained as a single Borrowing of Base Rate Loans (subject to the option to convert such A Term Loans pursuant to Section 1.06) and (ii) shall not exceed for any Bank, in initial aggregate principal amount, that 10 amount which equals the A Term Loan Commitment of such Bank on such date. Once repaid, A Term Loans incurred hereunder may not be reborrowed. (b) Subject to and upon the terms and conditions set forth herein, each Bank with a B Term Loan Commitment severally agrees to make, on the Original Restatement Effective Date, a term loan (each, a "B Term Loan" and, collectively, the "B Term Loans") to the Company, which B Term Loans (i) shall be made and initially maintained as a single Borrowing of Base Rate Loans (subject to the option to convert such B Term Loans pursuant to Section 1.06) and shall not exceed for any Bank, in initial aggregate principal amount, that amount which equals the B Term Loan Commitment of such Bank on such date. Once repaid, B Term Loans incurred hereunder may not be reborrowed. (c) Subject to and upon the terms and conditions set forth herein, each Bank with a C Term Loan Commitment severally agrees to make, on the Original Restatement Effective Date, a term loan (each a "C Term Loan" and, collectively, the "C Term Loans") to the Company, which C Term Loans (i) shall be made and initially maintained as a single Borrowing of Base Rate Loans (subject to the option to convert such C Term Loans pursuant to Section 1.06) and (ii) shall not exceed for any Bank, in initial aggregate principal amount, that amount which equals the C Term Loan Commitment of such Bank on such date. Once repaid, C Term Loans incurred hereunder may not be reborrowed. (d) Subject to and upon the terms and conditions set forth herein, each Bank with a D Term Loan Commitment severally agrees to make, at any time and from time to time after the Restatement Effective Date but on or prior to the D Term Loan Termination Date, a loan or loans (each a "D Term Loan" and, collectively, the "D Term Loans") to the Company, which D Term Loans (i) shall, at the option of the Company, be Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all D Term Loans comprising the same Borrowing shall at all times be of the same Type and (B) prior to the Syndication Termination Date, Eurodollar Loans may only be incurred on the Initial D Term Loan Eurodollar Loan Borrowing Date and/or on a monthly anniversary thereof and may not have an Interest Period in excess of one month, and (ii) shall not exceed for any Bank, in initial aggregate principal amount, that amount which equals the D Term Loan Commitment of such Bank at such time (before giving effect to any reductions thereto on such date pursuant to Section 3.03(e)(i) or (ii) but after giving effect to any reductions thereto on or prior to such date pursuant to Section 3.03(e)(iii)). Once repaid, D Term Loans incurred hereunder may not be reborrowed. -2- 11 (e) Subject to and upon the terms and conditions set forth herein, each Bank with a Revolving Loan Commitment severally agrees at any time and from time to time after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, to make a revolving loan or loans (each a "Revolving Loan" and, collectively, the "Revolving Loans") to the Company, which Revolving Loans: (I) shall, at the option of the Company, be Base Rate Loans or Eurodollar Loans, provided that (A) except as otherwise specifically provided in Section 1.10(b), all Revolving Loans comprising the same Borrowing shall at all times be of the same Type and (B) prior to the Syndication Termination Date, Eurodollar Loans may only be incurred on the Initial Revolving Loan Eurodollar Loan Borrowing Date and on a monthly anniversary thereof and may not have an Interest Period in excess of one month, provided that, to the extent that only one Bank has and maintains 100% of the Total Revolving Loan Commitment during the period from the Initial Revolving Loan Eurodollar Loan Borrowing Date to the Syndication Termination Date and such Bank so consents, then Revolving Loans may be incurred and maintained as Eurodollar Loans prior to the Syndication Termination Date on the terms and conditions set forth in this Agreement but without regard to the restrictions contained in this clause (B); (II) may be repaid and reborrowed in accordance with the provisions hereof; (III) shall not exceed for any Bank at any time outstanding that aggregate principal amount which, when added to (A) the aggregate amount of all other outstanding Revolving Loans made by such Bank and (B) the product of (i) such Bank's RL Percentage and (ii) the aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time, equals the Available Revolving Loan Commitment of such Bank at such time; and (IV) shall not exceed for all Banks at any time outstanding that aggregate principal amount which, when added to the aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) at such time, equals an amount equal to the Borrowing Base at such time. -3- 12 Notwithstanding anything to the contrary contained above, Revolving Loans may not be incurred on the Restatement Effective Date. 1.02 Minimum Amount of Each Borrowing. The aggregate principal amount of each Borrowing of Loans shall not be less than $1,000,000 and, if greater, shall be in an integral multiple of $100,000; provided, however, the aggregate principal amount of each Borrowing of Revolving Loans made as Base Rate Loans shall not be less than $500,000 and, if greater, shall be in integral multiples of $100,000; provided further, that the aggregate principal amount of each Borrowing of Revolving Loans may be in such lesser amounts as is acceptable to all Banks with a Revolving Loan Commitment and the Administrative Agent. More than one Borrowing may occur on the same date, but at no time shall there be outstanding more than twenty Borrowings of Eurodollar Loans. 1.03 Notice of Borrowing. (a) Except for any Borrowing of D Term Loans made on the Restatement Effective Date as to which a Notice of Borrowing shall be delivered on the Restatement Effective Date, whenever the Company desires to make a Borrowing hereunder it shall, except as permitted under Section 1.03(b), give the Administrative Agent at its Payment Office at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Base Rate Loans and at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans to be made hereunder, provided that any such notice shall be deemed to have been given on a certain day only if given before 12:00 Noon (New York time) on such day. Each such notice (each, a "Notice of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be irrevocable and, in the case of each written notice and each confirmation of telephonic notice, shall be given by the Company in the form of Exhibit A, appropriately completed to specify (i) the aggregate principal amount of the Loans to be made pursuant to such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day), (iii) whether the Loans being made pursuant to such Borrowing shall constitute D Term Loans or Revolving Loans and (iv) whether the Loans being made pursuant to such Borrowing are to be initially maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be applicable thereto. The Administrative Agent shall promptly give each Bank which is required to make Loans of the Tranche specified in the respective Notice of Borrowing notice of such proposed Borrowing, of such Bank's proportionate share thereof and of the other matters required by the immediately preceding sentence to be specified in the Notice of Borrowing. (b) (i) In the event the Company desires to make a Borrowing of Revolving Loans hereunder which are to be maintained as Base Rate Loans on the same -4- 13 day on which it shall give a notice of such a Borrowing, the Company shall give each Bank with a Revolving Loan Commitment written notice or telephonic notice confirmed in writing of each Revolving Loan to be made hereunder. Revolving Loans will only be made on a same-day notice basis if all Banks with a Revolving Loan Commitment agree, in their sole discretion, to make the requested Borrowing on the same day on which the Notice of Borrowing was provided. In the event that one or more Banks with a Revolving Loan Commitment do not agree to make the Borrowing requested in the notice described in the immediately preceding sentence on a same-day basis, such Notice of Borrowing shall be automatically irrevocably deemed to become a Notice of Borrowing by the Company to borrow Revolving Loans as specified in such notice on the immediately succeeding Business Day. Each such notice shall be irrevocable and specify in each case (A) the date of Borrowing (which shall be a Business Day), (B) the aggregate principal amount of the Revolving Loans to be made pursuant to such Borrowing and (C) that the Revolving Loans being made pursuant to such Borrowing are to be initially maintained as Base Rate Loans. (ii) Without in any way limiting the obligation of the Company to confirm in writing any telephonic notice of such Borrowing of Revolving Loans, the Bank may act without liability upon the basis of telephonic notice of such Borrowing, believed by such Bank in good faith to be from a President, a Vice President, a Treasurer or an Assistant Treasurer of the Company prior to receipt of written confirmation. In each such case, the Company hereby waives the right to dispute the Bank's record of the terms of such telephonic notice of such Borrowing of Revolving Loans. 1.04 Disbursement of Funds. No later than 12:00 Noon (New York time) on the date specified in each Notice of Borrowing (or in the case of Revolving Loans to be incurred pursuant to a notice given in accordance with Section 1.03(b)(i), at such time as all such Banks with a Revolving Loan Commitment shall agree on the date specified in such notice or, in the event that all Banks with a Revolving Loan Commitment have not so agreed to make a same date Borrowing, no later than 12:00 Noon (New York time) on the Business Day immediately following the date specified in such notice), each Bank with a Commitment of the respective Tranche will make available its pro rata portion of each such Borrowing requested to be made on such date. All such amounts shall be made available in Dollars and in immediately available funds at the Payment Office of the Administrative Agent, and the Administrative Agent will make available to the Company at the Payment Office the aggregate of the amounts so made available by the Banks. Unless the Administrative Agent shall have been notified by any Bank prior to the date of Borrowing that such Bank does not intend to make available to the Administrative Agent such Bank's portion of any Borrowing to be made on such date, the Administrative Agent may assume that such Bank has made such amount available to the Administrative Agent on such date of Borrowing and the -5- 14 Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Company a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Bank, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefore, the Administrative Agent shall notify the Company and the Company shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover on demand from such Bank or the Company, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Company until the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (i) if recovered from such Bank, the cost to the Administrative Agent of acquiring overnight Federal funds and (ii) if recovered from the Company, the rate of interest applicable to the respective Borrowing, as determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be deemed to relieve any Bank from its obligation to make Loans hereunder or to prejudice any rights which the Company may have against any Bank as a result of any failure by such Bank to make Loans hereunder. 1.05 Notes. (a) The Company's obligation to pay the principal of, and interest on, the Loans made by each Bank shall be evidenced (i) if A Term Loans, by a promissory note duly executed and delivered by the Company substantially in the form of Exhibit B-1 with blanks appropriately completed herewith (each, an "A Term Note" and, collectively, the "A Term Notes"), (ii) if B Term Loans, by a promissory note duly executed and delivered by the Company substantially in the form of Exhibit B-2 with blanks appropriately completed in conformity herewith (each, a "B Term Note" and, collectively, the "B Term Notes"), (iii) if C Term Loans, by a promissory note duly executed and delivered by the Company substantially in the form of Exhibit B-3 with blanks appropriately completed in conformity herewith (each, a "C Term Note" and, collectively, the "C Term Notes"), (iv) if D Term Loans, by a promissory note duly executed and delivered by the Company substantially in the form of Exhibit B-4 with blanks appropriately completed in conformity herewith (each, a "D Term Note" and, collectively, the "D Term Notes") and (v) if Revolving Loans, by a promissory note duly executed and delivered by the Company substantially in the form of Exhibit B-5 with blanks appropriately completed in conformity herewith (each, a "Revolving Note" and, collectively, the "Revolving Notes"). (b) The A Term Note issued to each Bank with an A Term Loan Commitment shall (i) be executed by the Company, (ii) be payable to the order of such Bank and be dated the date of issuance thereof, (iii) be in a stated principal amount -6- 15 equal to the principal amount of the A Term Loans made by such Bank and be payable in the principal amount of the A Term Loans evidenced thereby, (iv) mature on the A Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and be secured by the Security Documents. (c) The B Term Note issued to each Bank with a B Term Loan Commitment shall (i) be executed by the Company, (ii) be payable to the order of such Bank and be dated the date of issuance thereof, (iii) be in a stated principal amount equal to the principal amount of the B Term Loans made by such Bank and be payable in the principal amount of the B Term Loans evidenced thereby, (iv) mature on the B Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and be secured by the Security Documents. (d) The C Term Note issued to each Bank with a C Term Loan Commitment shall (i) be executed by the Company, (ii) be payable to the order of such Bank and be dated the date of issuance thereof, (iii) be in a stated principal amount equal to the principal amount of the C Term Loans made by such Bank and be payable in the principal amount of the C Term Loans evidenced thereby, (iv) mature on the C Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and be secured by the Security Documents. (e) The D Term Note issued to each Bank with a D Term Loan Commitment shall (i) be executed by the Company, (ii) be payable to the order of such Bank and be dated the date of issuance thereof, (iii) be in a stated principal amount equal to the principal amount of the D Term Loan Commitment of such Bank and be payable in the principal amount of the D Term Loans evidenced thereby from time to time, (iv) mature on the D Term Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and be secured by the Security Documents. -7- 16 (f) The Revolving Note issued to each Bank with a Revolving Loan Commitment shall (i) be executed by the Company, (ii) be payable to the order of such Bank and be dated the date of issuance thereof, (iii) be in a stated principal amount equal to the Revolving Loan Commitment of such Bank and be payable in the principal amount of the Revolving Loans evidenced thereby from time to time, (iv) mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to mandatory repayment as provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement and be secured by the Security Documents. (g) Each Bank will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will prior to any transfer of any of its Notes endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation or endorsement shall not affect the Company's obligations in respect of such Loans. 1.06 Conversions. The Company shall have the option to convert, all or a portion equal to at least $1,000,000 in the case of a Borrowing of Term Loans, and equal to at least $500,000 in the case of a Borrowing of Revolving Loans, of the outstanding principal amount of the Loans made pursuant to one or more Borrowings (so long as of the same Tranche) of one Type of Loan into a Borrowing or Borrowings (of the same Tranche) of the other Type of Loan, provided that (i) except as otherwise provided in Section 1.10(b), Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable to the Loans being converted and no such partial conversion of Eurodollar Loans shall reduce the outstanding principal amount of such Eurodollar Loans made pursuant to a single Borrowing to less than $1,000,000, (ii) Base Rate Loans may only be converted into Eurodollar Loans if no Default or Event of Default is in existence on the date of the conversion, (iii) no conversion pursuant to this Section 1.06 shall result in a greater number of Borrowings than is permitted under Section 1.02 and (iv) prior to the Syndication Termination Date, no D Term Loans and no Revolving Loans (other than Revolving Loans to the extent that only one Bank has and maintains 100% of the Total Revolving Loan Commitment during the period from the Initial Revolving Loan Eurodollar Loan Borrowing Date to the Syndication Termination Date and such Bank consents to any such conversion) may be converted into a Eurodollar Loan except (a) in the case of Revolving Loans, on the Initial Revolving Loan Eurodollar Loan Borrowing Date or on a monthly anniversary thereof and (b) in the case of D Term Loans, on the Initial D Term Loan Eurodollar Loan Borrowing Date or a monthly anniversary thereof. Each such conversion shall be effected by the Company by giving the Administrative Agent at its Notice Office prior to 12:00 Noon (New York time) at least three Business Days' prior written notice -8- 17 (or telephonic notice promptly confirmed in writing) (each a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing(s) pursuant to which such Loans were made and, if to be converted into Eurodollar Loans, the Interest Period to be initially applicable thereto. The Administrative Agent shall give each Bank prompt notice of any such proposed conversion affecting any of its Loans. Upon any such conversion the proceeds thereof will be deemed to be applied directly on the day of such conversion to prepay the outstanding principal amount of the Loans being converted. 1.07 Pro Rata Borrowings. All Borrowings of Loans under this Agreement shall be incurred from the Banks pro rata on the basis of their respective Commitments of the applicable Tranche. It is understood that no Bank shall be responsible for any default by any other Bank of its obligation to make Loans hereunder and that each Bank shall be obligated to make the Loans provided to be made by it hereunder regardless of the failure of any other Bank to make its Loans hereunder. 1.08 Interest. (a) The Company agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date the proceeds thereof are made available to the Company until the maturity thereof (whether by acceleration or otherwise) at a rate per annum which shall be equal to the sum of the Applicable Margin plus the Base Rate in effect from time to time. (b) The Company agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date the proceeds thereof are made available to the Company until the maturity thereof (whether by acceleration or otherwise) at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the Applicable Margin plus the Quoted Rate for such Interest Period. (c) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan and any other overdue amount payable hereunder shall, in each case, bear interest at a rate per annum equal to the greater of (x) 2% per annum in excess of the rate otherwise applicable to Base Rate Loans of the respective Tranche of Loans from time to time and (y) the rate which is 2% in excess of the rate then borne by such Loans, in each case with such interest to be payable on demand. (d) Accrued (and theretofore unpaid) interest shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment Date, (ii) in respect of each Eurodollar Loan, on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period -9- 18 and (iii) in respect of each Loan, on any repayment (on the amount repaid), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. Notwithstanding anything to the contrary contained in this Agreement or in the Existing Credit Agreement, all accrued (but theretofore unpaid) interest with respect to Existing Revolving Loans and Deferred Loans which were outstanding on the Restatement Effective Date immediately prior to giving effect thereto shall be payable on the Restatement Effective Date. (e) Upon each Interest Determination Date, the Administrative Agent shall determine the Quoted Rate for each Interest Period applicable to Eurodollar Loans and shall promptly notify the Company and the Banks thereof. Each such determination shall, absent manifest error, be final and conclusive and binding on all parties hereto. 1.09 Interest Periods. At the time it gives any Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of any Eurodollar Loan (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to such Eurodollar Loan (in the case of any subsequent Interest Period), the Company shall have the right to elect, by giving the Administrative Agent notice thereof, the interest period (each an "Interest Period") applicable to such Eurodollar Loan, which Interest Period shall, at the option of the Company, be a one, two, three, six or, to the extent approved by each Bank, in its sole discretion, with Commitments and/or Loans of the respective Tranche, a twelve month period, provided that: (i) all Eurodollar Loans comprising a single Borrowing shall at all times have the same Interest Period; (ii) the initial Interest Period for any Eurodollar Loan shall commence on the date of Borrowing of such Loan (including the date of any conversion thereto from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Loan shall commence on the day on which the next preceding Interest Period applicable thereto expires; (iii) if any Interest Period relating to a Eurodollar Loan begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding -10- 19 Business Day; provided, however, that if any Interest Period for a Eurodollar Loan would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) no Interest Period may be selected at any time when any Default or Event of Default is then in existence; (vi) no Interest Period shall be selected which extends beyond the Maturity Date which applies to the Eurodollar Loan under the Tranche under which it has been incurred; (vii) no Interest Period in respect of any Borrowing of A Term Loans, B Term Loans, C Term Loans or D Term Loans, as the case may be, shall be selected which extends beyond any date upon which a mandatory repayment of such A Term Loans, B Term Loans, C Term Loans or D Term Loans would be required to be made under Section 4.02(A)(d), (e), (f) or (g), as the case may be, if, after giving effect to the selection of such Interest Period, the aggregate principal amount of such A Term Loans, B Term Loans, C Term Loans or D Term Loans, as the case may be, maintained as Eurodollar Loans which have Interest Periods expiring after such date will be in excess of the aggregate principal amount of such A Term Loans, B Term Loans, C Term Loans or D Term Loans, as the case may be, then outstanding less the aggregate amount of such required prepayment; and (viii) (I) no Interest Period shall be selected for a Borrowing of any Eurodollar Loans consisting of D Term Loans or Revolving Loans (other than Revolving Loans to the extent that only one Bank has and maintains 100% of the Total Revolving Loan Commitment during the period from the Initial Revolving Loan Eurodollar Loan Borrowing Date to the Syndication Termination Date and such Bank consents to such Interest Period) prior to the Initial D Term Loan Eurodollar Loan Borrowing Date or the Initial Revolving Loan Eurodollar Loan Borrowing Date, as applicable, and (II) prior to the Syndication Termination Date, no Interest Period shall be selected for a Borrowing of any Eurodollar Loans consisting of D Term Loans or Revolving Loans (other than Revolving Loans to the extent that only one Bank has and maintains 100% of the Total Revolving Loan Commitment during the period from the Initial Revolving Loan Eurodollar Loan Borrowing Date to the Syndication Termination Date and such Bank consents to such Interest Period) which is in excess of one month. -11- 20 If upon the expiration of any Interest Period applicable to a Borrowing of Eurodollar Loans, the Company has failed to elect, or is not permitted to elect, a new Interest Period to be applicable to such Eurodollar Loans as provided above or a Default or an Event of Default then exists, the Company shall be deemed to have elected to convert such Eurodollar Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. 1.10 Increased Costs; Illegality; etc. (a) In the event that any Bank shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by the Administrative Agent): (i) on any Interest Determination Date that, by reason of any changes arising after the Original Effective Date affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Quoted Rate; or (ii) at any time, that such Bank shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loan because of (x) any change since the Original Effective Date in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payments to any Bank of the principal of or interest on the Notes or any other amounts payable hereunder (except for (a) changes in the rate of tax on, or determined by reference to, the net income or profits of such Bank imposed by the jurisdiction in which its principal office or applicable lending office is located and (b) United States withholding taxes, which shall be governed by the provisions of Section 4.04) or (B) a change in official reserve requirements (but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Quoted Rate) and/or (y) other circumstances since the Original Effective Date affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market (excluding, however, differences in a Bank's cost of funds from those of the Administrative Agent which are solely the result of credit differences between such Bank and the Administrative Agent); or (iii) at any time, that the making or continuance of any Eurodollar Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any Bank in good faith with any -12- 21 governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the Original Effective Date which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Bank (or the Administrative Agent, in the case of clause (i) above) shall promptly give notice (by telephone confirmed in writing) to the Company and, except in the case of clause (i) above, to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Banks). Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Administrative Agent notifies the Company and the Banks that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Company with respect to Eurodollar Loans which have not yet been incurred (including by way of conversion) shall be deemed rescinded by the Company, (y) in the case of clause (ii) above, the Company shall pay to such Bank, upon written demand therefore, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its sole discretion shall determine) as shall be required to compensate such Bank for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Bank, showing the basis for the calculation thereof, submitted to the Company by such Bank shall, absent manifest error, be final and conclusive and binding on all the parties hereto; however the failure to give any such notice (unless the respective Bank has intentionally withheld or delayed such notice, in which case the respective Bank shall not be entitled to receive additional amounts pursuant to this Section 1.10(a)(y) for periods occurring prior to the 180th day before the giving of such notice) shall not release or diminish the Company's obligations to pay additional amounts pursuant to this Section 1.10(a)(y)) and (z) in the case of clause (iii) above, the Company shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law. In determining such additional amounts pursuant to clause (y) of the immediately preceding sentence, each Bank shall act reasonably and in good faith and will, to the extent the increased costs or reductions in amounts receivable relate to such Bank's loans in general and are not specifically attributable to a Loan hereunder, use averaging and attribution methods which are reasonable and which cover all loans similar to the Loans made by such Bank whether or not the loan documentation for such other loans permits the Bank to receive increased costs of the type described in this Section 1.10(a). (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the Company may (and in the case of a Eurodollar Loan affected by the circumstances described in Section 1.10(a)(iii) shall) either (i) if the affected Eurodollar Loan is then being made initially or pursuant -13- 22 to a conversion, by giving the Administrative Agent telephonic notice (confirmed in writing) on the same date that the Company was notified by the affected Bank or the Administrative Agent pursuant to Section 1.10(a)(ii) or (iii), cancel the respective Borrowing, or (ii) if the affected Eurodollar Loan is then outstanding, upon at least three Business Days' written notice to the Administrative Agent, require the affected Bank to convert such Eurodollar Loan into a Base Rate Loan, provided that if more than one Bank is affected at any time, then all affected Banks must be treated the same pursuant to this Section 1.10(b). (c) If at any time after the Original Effective Date, any Bank determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank based on the existence of such Bank's Commitments hereunder or its obligations hereunder, then the Company shall pay to such Bank, upon its written demand therefor, such additional amounts as shall be required to compensate such Bank or such other corporation for the increased cost to such Bank or such other corporation or the reduction in the rate of return to such Bank or such other corporation as a result of such increase of capital. In determining such additional amounts, each Bank will act reasonably and in good faith and will use averaging and attribution methods which are reasonable and which will, to the extent the increased costs or reduction in the rate of return relates to such Bank's commitments or obligations in general and are not specifically attributable to the Commitments and obligations hereunder, cover all commitments and obligations similar to the Commitments and obligations of such Bank hereunder whether or not the loan documentation for such other commitments or obligations permits the Bank to make the determination specified in this Section 1.10(c), and such Bank's determination of compensation owing under this Section 1.10(c) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Bank, upon determining that any additional amounts will be payable pursuant to this Section 1.10(c), will give prompt written notice thereof to the Company, which notice shall show the basis for calculation of such additional amounts, although the failure to give any such notice (unless the respective Bank has intentionally withheld or delayed such notice, in which case the respective Bank shall not be entitled to receive additional amounts pursuant to this Section 1.10(c) for periods occurring prior to the 180th day before the giving of such notice) shall not release or diminish any of the Company's obligations to pay additional amounts pursuant to this Section 1.10(c). -14- 23 1.11 Compensation. The Company shall compensate each Bank, upon its written request (which request shall set forth the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Bank to fund its Eurodollar Loans) which such Bank may sustain: (i) if for any reason (other than a default by such Bank or the Administrative Agent) a Borrowing of, or conversion from or into, Eurodollar Loans does not occur on a date specified therefore in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the Company or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including, without limitation, any repayment made pursuant to Section 4.02 and any repayment of Existing Loans to occur on the Restatement Effective Date pursuant to Section 5.03) of any of its Eurodollar Loans (or, in the case of Existing Loans, eurodollar loans under the Existing Credit Agreement) occurs on a date which is not the last day of an Interest Period (or, in the case of Existing Loans, an interest period under the Existing Credit Agreement) with respect thereto; (iii) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Company; or (iv) as a consequence of (x) any other default by the Company to repay its Loans when required by the terms of this Agreement or any Note held by such Bank or (y) any election made pursuant to Section 1.10(b). A Bank's basis for requesting compensation pursuant to this Section 1.11, and a Bank's calculations of the amounts thereof, shall, absent manifest error, be final and conclusive and binding on all parties hereto. 1.12 Replacement of Banks. If any Bank (other than the Administrative Agent) (x) is owed increased costs under Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.06 or Section 4.04 materially in excess of those of the other Banks or (y) refuses to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks as provided in Section 13.12(b), the Company shall have the right, if no Default or Event of Default then exists, to replace such Bank (the "Replaced Bank") with one or more other Eligible Transferee or Transferees (collectively, the "Replacement Bank") acceptable to the Administrative Agent, provided that: (i) at the time of any replacement pursuant to this Section 1.12, the Replacement Bank shall enter into one or more assignment agreements, in form and substance satisfactory to the Administrative Agent, pursuant to which the Replacement Bank shall acquire all of the Commitments and outstanding Loans of, and participations in Letters of Credit by, the Replaced Bank and, in connection therewith, shall pay to (x) the Replaced Bank in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Bank, (B) an amount -15- 24 equal to all Unpaid Drawings that have been funded by (and not reimbursed to) such Replaced Bank, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Bank pursuant to Section 3.01 hereof and (y) the appropriate Issuing Bank an amount equal to such Replaced Bank's RL Percentage of any Unpaid Drawing (which at such time remains an Unpaid Drawing), to the extent such amount was not theretofore funded by such Replaced Bank; and (ii) all obligations of the Company owing to the Replaced Bank (including, without limitation, such increased costs and excluding those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Bank concurrently with such replacement. Upon the execution of the respective assignment documentation, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Bank, delivery to the Replacement Bank of the appropriate Note or Notes executed by the Company, the Replacement Bank shall become a Bank hereunder and the Replaced Bank shall cease to constitute a Bank hereunder, except with respect to indemnification and clawback provisions under this Agreement, which shall survive as to such Replaced Bank. Notwithstanding anything to the contrary contained above, no Issuing Bank may be replaced hereunder at any time while it has Letters of Credit outstanding hereunder unless arrangements satisfactory to such Issuing Bank (including the furnishing of a standby letter of credit in form and substance, and issued by an issuer satisfactory to such Issuing Bank or the furnishing of cash collateral in amounts and pursuant to arrangements satisfactory to such Issuing Bank) have been made with respect to such outstanding Letters of Credit. Section 2. Letters of Credit. 2.01 Letters of Credit. (a) Subject to and upon the terms and conditions herein set forth, the Company may request any Issuing Bank at any time and from time to time on and after the Restatement Effective Date and prior to the Revolving Loan Maturity Date to issue, (x) for the account of the Company and for the benefit of any holder (or any trustee, agent or other similar representative for any such holders) of L/C Supportable Indebtedness of the Company, an irrevocable standby letter of credit in a form customarily used by such Issuing Bank or in such other form as has been approved by the Company and such Issuing Bank in support of said L/C Supportable Indebtedness (each such standby letter of credit, a "Standby Letter of Credit" and collectively, the "Standby Letters of Credit") and (y) for the account of the -16- 25 Company and for the benefit of any obligee of trade obligations of the Company, an irrevocable trade letter of credit in a form customarily used by such Issuing Bank or in such other form as has been approved by such Issuing Bank and the Company, in support of trade obligations of the Company (each such trade letter of credit, a "Trade Letter of Credit" and collectively, the "Trade Letters of Credit," each Trade Letter of Credit and each Standby Letter of Credit, a "Letter of Credit" and the Trade Letters of Credit and the Standby Letters of Credit, collectively, the "Letters of Credit"). All Letters of Credit shall be denominated in Dollars. It is hereby acknowledged and agreed that the standby letters of credit which were issued by the respective Issuing Bank under the Original Credit Agreement or the Existing Credit Agreement and which remain outstanding on the Restatement Effective Date (the "Existing Standby Letters of Credit") shall constitute Standby Letters of Credit for all purposes of this Agreement and shall be deemed issued, with the same maturity date, on the Restatement Effective Date for purposes of Sections 2.04(a) and 3.01. The Existing Standby Letters of Credit and the Stated Amounts and the expiry dates thereof and the beneficiaries thereunder are described on Schedule II. (b) Each Issuing Bank hereby agrees, in its sole discretion, that it will, and BTCo hereby agrees that, in the event a requested Letter of Credit is not issued by any one of the other Issuing Banks, it will (subject to the terms and conditions contained herein), at any time and from time to time on and after the Restatement Effective Date and prior to the Revolving Loan Maturity Date, following its receipt of the respective Letter of Credit Request, issue for the account of the Company one or more Letters of Credit, (x) in the case of Standby Letters of Credit, in support of such L/C Supportable Indebtedness of the Company as is permitted to remain outstanding without giving rise to a Default or Event of Default hereunder and (y) in the case of Trade Letters of Credit, in support of obligees of trade obligations of the Company as referenced in Section 2.01(a); provided that the respective Issuing Bank shall be under no obligation to issue any Letter of Credit of the types described above if at the time of such issuance: (i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain such Issuing Bank from issuing such Letter of Credit or any requirement of law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuing Bank is not otherwise compensated) not in effect on the Original Effective Date, or any unreimbursed -17- 26 loss, cost or expense which was not applicable, in effect or known to such Issuing Bank as of the Original Effective Date, and which such Issuing Bank in good faith deems material to it; (ii) such Issuing Bank shall have received notice from any Bank prior to the issuance of such Letter of Credit of the type described in the penultimate sentence of Section 2.03(b); or (iii) a Bank Default exists, unless such Issuing Bank has entered into arrangements satisfactory to it and the Company to eliminate such Issuing Bank's risk with respect to the Bank which is the subject of the Bank Default including by cash collateralizing such Bank's applicable RL Percentage of the Letter of Credit Outstandings. (c) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) at such time, would exceed (x) $2,500,000, (y) when added to the aggregate principal amount of all Revolving Loans then outstanding, an amount equal to the Total Available Revolving Loan Commitment then in effect or (z) when added to the aggregate principal amount of all Revolving Loans then outstanding, an amount equal to the Borrowing Base, (ii) each Standby Letter of Credit shall by its terms terminate on or before the earlier of (x) the date which occurs 12 months after the date of the issuance thereof (although any such Standby Letter of Credit may be extendable for successive periods of up to 12 months, but not beyond the Revolving Loan Maturity Date, on terms acceptable to the Administrative Agent and the Issuing Bank with any such extension to be treated as a new issuance of the Standby Letter of Credit being extended) and (y) the Revolving Loan Maturity Date and (iii) each Trade Letter of Credit shall by its terms terminate on or before the earlier of (x) the date which occurs 24 months after the date of the issuance thereof and (y) the Revolving Loan Maturity Date. 2.02 Minimum Stated Amount. The Stated Amount of each Standby Letter of Credit shall be not less than $100,000 and the Stated Amount of each Trade Letter of Credit shall be not less than $125,000 or, in each case, such lesser amount as is acceptable to the Issuing Bank issuing such Letter of Credit. 2.03 Letter of Credit Requests. (a) Whenever the Company desires that a Letter of Credit be issued for its account, the Company shall give the Administrative Agent and the respective Issuing Bank at least ten Business Days' (or such shorter period as is acceptable to such Issuing Bank in any given case) written notice prior to -18- 27 the proposed date of issuance (which shall be a Business Day). Each notice shall be in the form of Exhibit C (each a "Letter of Credit Request"). (b) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Company that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 2.01(c). Unless the respective Issuing Bank has received notice from any Bank before it issues a Letter of Credit that one or more of the applicable conditions specified in Section 5 or 6 are not then satisfied, or that the issuance of such Letter of Credit would violate Section 2.01(c), then such Issuing Bank shall issue on the date of issuance requested in the applicable Letter of Credit Request the requested Letter of Credit for the account of the Company in accordance with such Issuing Bank's usual and customary practices. Upon its issuance of, or its entering into an amendment with respect to, any Letter of Credit, the respective Issuing Bank shall promptly notify each Bank of such issuance or amendment, which notice shall be accompanied by a copy of the Letter of Credit actually issued or amendment entered into, as the case may be, by such Issuing Bank. 2.04 Letter of Credit Participations. (a) Immediately upon the issuance by the respective Issuing Bank of any Letter of Credit (and on the Restatement Effective Date in the case of Existing Letters of Credit), such Issuing Bank shall be deemed to have sold and transferred to each Bank with a Revolving Loan Commitment, other than such Issuing Bank (each such Bank, in its capacity under this Section 2.04, a "Participant"), and each such Participant shall be deemed irrevocably and unconditionally to have purchased and received from such Issuing Bank, without recourse or warranty, an undivided interest and participation, to the extent of such Participant's RL Percentage in such Letter of Credit, each substitute letter of credit, each drawing made thereunder and the obligations of the Company under this Agreement with respect thereto, and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Loan Commitments of the Banks pursuant to Section 1.12 or 13.04, it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic adjustment to the participations pursuant to this Section 2.04 to reflect the new RL Percentages of the assignor and assignee Banks or of all Banks with Revolving Loan Commitments, as the case may be. (b) In determining whether to pay under any Letter of Credit, no Issuing Bank shall have any obligation relative to the other Banks other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by any Issuing Bank under or in connection with any Letter of Credit if taken or omitted in the absence of -19- 28 gross negligence or willful misconduct, shall not create for such Issuing Bank any resulting liability to the Company or any Bank. (c) In the event that any Issuing Bank makes any payment under any Letter of Credit and the Company shall not have reimbursed such amount in full to the respective Issuing Bank pursuant to Section 2.05(a), the respective Issuing Bank shall promptly notify the Administrative Agent, which shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuing Bank the amount of such Participant's applicable RL Percentage of such unreimbursed payment in Dollars and in same day funds. If the Administrative Agent so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any Participant required to fund a payment under a Letter of Credit, such Participant shall make available to the Administrative Agent at the Payment Office of the Administrative Agent for the account of such Issuing Bank in Dollars such Participant's applicable RL Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Participant shall not have so made its applicable RL Percentage of the amount of such payment available to the Administrative Agent for the account of such Issuing Bank, such Participant agrees to pay to the Administrative Agent for the account of such Issuing Bank, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Administrative Agent for the account of such Issuing Bank at the cost to such Issuing Bank of acquiring overnight Federal funds. The failure of any Participant to make available to the Administrative Agent for the account of such Issuing Bank its applicable RL Percentage of any payment under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to the Administrative Agent for the account of such Issuing Bank its applicable RL Percentage of any Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to the Administrative Agent for the account of such Issuing Bank such other Participant's applicable RL Percentage of any such payment. (d) Whenever any Issuing Bank receives a payment of a reimbursement obligation as to which the Administrative Agent has received for the account of such Issuing Bank any payments from the Participants pursuant to clause (c) above, such Issuing Bank shall pay to the Administrative Agent and the Administrative Agent shall promptly pay each Participant which has paid its applicable RL Percentage thereof, in Dollars and in same day funds, an amount equal to such Participant's share (based on the proportionate aggregate amount funded by such Participant to the aggregate amount funded by all Participants) of the principal amount of such -20- 29 reimbursement obligation and interest thereon accruing after the purchase of the respective participations. (e) Upon the request of any Participant, each Issuing Bank shall furnish to such Participant copies of any Letter of Credit issued by it and such other documentation as may reasonably be requested by such Participant. (f) The obligations of each respective Participant to make payments to the Administrative Agent for the account of each Issuing Bank with respect to Letters of Credit issued which such Participant has a participation in shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents; (ii) the existence of any claim, setoff, defense or other right which the Company may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, any Participant, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Company and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of this Agreement or any of the other Credit Documents; or (v) the occurrence of any Default or Event of Default. 2.05 Agreement to Repay Letter of Credit Drawings. (a) The Company hereby agrees to reimburse the respective Issuing Bank, by making payment to the Administrative Agent in immediately available funds at the Payment Office (or by making the payment directly to the respective Issuing Bank at such location as may otherwise have been agreed upon by the Company and the respective Issuing Bank), for -21- 30 any payment or disbursement made by such Issuing Bank under any Letter of Credit (each such amount so paid until reimbursed, an "Unpaid Drawing"), immediately after, and in any event on the date of, such payment or disbursement, if the respective Issuing Bank has given the Company notice of such payment or disbursement prior to 2:00 p.m. (New York time) on the date of such payment or disbursement (which notice such Issuing Bank shall be under no obligation to give), and in any event on the Business Day immediately succeeding such payment or disbursement, with interest on the amount so paid or disbursed by the respective Issuing Bank, to the extent not reimbursed prior to 12:00 Noon (New York time) on the date of such payment or disbursement, from and including the date paid or disbursed to but excluding the date such Issuing Bank is reimbursed by the Company therefor at a rate per annum which shall be (x) unless a Bankruptcy Default exists on the date of the respective payment or disbursement, for the period from and including the date of the respective payment or disbursement until the earlier to occur of a Bankruptcy Default or the date of receipt by the Company from such Issuing Bank or the Administrative Agent of written or telephonic notice of such payment or disbursement, the Base Rate in effect from time to time plus the Applicable Margin for Revolving Loans at the time of such payment or disbursement, and (y) from and including the date of the respective payment or disbursement if a Bankruptcy Default then exists or, if a Bankruptcy Default does not exist on the date of the respective payment or disbursement, from and including the earlier to occur of the date upon which a Bankruptcy Default subsequently occurs or the date of receipt by the Company from such Issuing Bank or the Administrative Agent of written or telephonic notice of such payment or disbursement to but excluding the date such Issuing Bank was reimbursed by the Company therefor, the Base Rate in effect from time to time plus 4%, in each case with such interest to be payable on demand. Each Issuing Bank shall provide the Company and the Administrative Agent prompt notice of any payment or disbursement made under the Letter of Credit issued by such Issuing Bank, although the failure of, or the delay in, giving any such notice shall not release or diminish the obligations of the Company under this Section 2.05(a) or under any other Section of this Agreement. (b) The obligations of the Company under this Section 2.05 to reimburse each Issuing Bank with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Company may have or have had against any Bank (including in its capacity as Issuing Bank or as Participant) or any beneficiary or any transferee of the respective Letter of Credit, including, without limitation, any defense based upon the failure of any drawing under a Letter of Credit (each a "Drawing") to conform to the terms of the Letter of Credit or any nonapplication or misapplication by the beneficiary of the proceeds of such Drawing or any draft, demand, certificate or any other document presented under such -22- 31 Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any or all respects or any statement therein being untrue or inaccurate in any respect; provided, however, that the Company shall not be obligated to reimburse any Issuing Bank for any wrongful payment made by such Issuing Bank under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of such Issuing Bank. 2.06 Increased Costs. If at any time after the Original Effective Date any Issuing Bank or any Participant determines that the introduction of or any change in any applicable law, rule, regulation, order, guideline or request or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by any Issuing Bank or any Participant with any request or directive by any such authority (whether or not having the force of law), shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against letters of credit issued by any Issuing Bank or participated in by any Participant, or (ii) impose on any Issuing Bank or any Participant any other conditions relating, directly or indirectly, to this Agreement or any Letter of Credit; and the result of any of the foregoing is to increase the cost to any Issuing Bank or any Participant of issuing, maintaining or participating in any Letter of Credit, or reduce the amount of any sum received or receivable by any Issuing Bank or any Participant hereunder or reduce the rate of return on its capital with respect to Letters of Credit, then, upon demand to the Company by any Issuing Bank or any Participant (a copy of which demand shall be sent by such Issuing Bank or such Participant to the Administrative Agent), the Company shall pay to such Issuing Bank or such Participant such additional amount or amounts as will compensate such Bank for such increased cost or reduction in the amount receivable or reduction on the rate of return on its capital. In determining such additional amounts pursuant to the preceding sentence, each Issuing Bank or Participant will act reasonably and in good faith and will, to the extent the increased costs or reductions in amounts receivable or reductions in rates of return relate to such Issuing Bank's or Participant's letters of credit in general and are not specifically attributable to the Letters of Credit hereunder, use averaging and attribution methods which are reasonable and which cover all letters of credit similar to the Letters of Credit issued by or participated in by such Issuing Bank or Participant whether or not the documentation for such other Letters of Credit permit such Issuing Bank or Participant to receive amounts of the type described in this Section 2.06. Any Issuing Bank or any Participant, upon determining that any additional amounts will be payable pursuant to this Section 2.06, will give prompt written notice thereof to the Company, which notice shall include a certificate submitted to the Company by such Issuing Bank or such Participant (a copy of which certificate shall be sent by such Issuing Bank or such Participant to the Administrative Agent), setting forth in reasonable detail the basis for the calculation of such additional amount or -23- 32 amounts necessary to compensate such Issuing Bank or such Participant, although failure to give any such notice (unless the respective Issuing Bank or Participant has intentionally withheld or delayed such notice, in which case the respective Issuing Bank or Participant shall not be entitled to receive additional amounts pursuant to this Section 2.06 for periods occurring prior to the 180th day before the giving of such notice) shall not release or diminish the Company's obligations to pay additional amounts pursuant to this Section 2.06. The certificate required to be delivered pursuant to this Section 2.06 shall, absent manifest error, be final, conclusive and binding on the Company. Section 3. Commitment Fees; Fees; Reductions of Commitment. 3.01 Fees. (a) The Company agrees to pay to the Administrative Agent for distribution to each Bank with a Revolving Loan Commitment a commitment fee (the "RL Commitment Commission") for the period from and including the Restatement Effective Date to and including the Revolving Loan Maturity Date (or such earlier date as the Total Revolving Loan Commitment shall have been terminated) computed at the rate for each day equal to 1/2 of 1% per annum on the daily Unutilized Revolving Loan Commitment of such Bank. Accrued RL Commitment Commission shall be due and payable in immediately available funds quarterly in arrears on each Quarterly Payment Date and on the Revolving Loan Maturity Date or such earlier date upon which the Total Revolving Loan Commitment is terminated. (b) The Company agrees to pay to the Administrative Agent for distribution to each Bank with a D Term Loan Commitment a commitment fee (a "D Term Loan Commitment Commission") for the period from and including the Restatement Effective Date to and including the D Term Loan Termination Date (or such earlier date as the Total D Term Loan Commitment shall have been terminated) computed at the rate for each day equal to 1/2 of 1% per annum on the daily D Term Loan Commitment of such Bank. Accrued D Term Loan Commitment Commission shall be due and payable in immediately available funds quarterly in arrears on each Quarterly Payment Date and on the D Term Loan Termination Date or such earlier date upon which the Total D Term Loan Commitment is terminated. (c) The Company agrees to pay to the Administrative Agent for distribution to each Bank with a Revolving Loan Commitment a fee in respect of each Letter of Credit issued hereunder (the "Letter of Credit Fee"), for the period from and including the date of issuance of such Letter of Credit (or, in the case of Existing Letters of Credit, from the Restatement Effective Date) to and including the termination of such Letter of Credit, computed at a rate per annum equal to 3% of the daily Stated Amount of such Letter of Credit. Letter of Credit Fees shall be distributed by the Administrative Agent to the Banks with Revolving Loan Commitments on the basis of -24- 33 their respective RL Percentages as in effect from time to time. Accrued Letter of Credit Fees shall be due and payable in immediately available funds quarterly in arrears on each Quarterly Payment Date and on the first day after the termination of the Total Revolving Loan Commitment on which no Letters of Credit remain outstanding. (d) The Company agrees to pay to each Issuing Bank at all times when there is more than one Bank with a Revolving Loan Commitment, for its own account, a facing fee in respect of each Letter of Credit issued by such Issuing Bank hereunder (the "Facing Fee") for the period from and including the date of issuance (or, (x) in the case of Existing Letters of Credit, the Restatement Effective Date or (y) in the event that on the date of issuance (or the Restatement Effective Date in the case of Existing Letters of Credit) there is only one Bank with a Revolving Loan Commitment on such later date on which there is more than one Bank with a Revolving Loan Commitment) of such Letter of Credit to and including the termination of such Letter of Credit, equal to 1/4 of 1% per annum of the daily Stated Amount of such Letter of Credit. Accrued Facing Fees shall be due and payable in immediately available funds quarterly in arrears on each Quarterly Payment Date and on the first day after the termination of the Total Revolving Loan Commitment on which no Letters of Credit remain outstanding. (e) The Company hereby agrees to pay in immediately available funds directly to each Issuing Bank upon each issuance of, drawing under, and/or amendment of, a Letter of Credit issued by such Issuing Bank such amount as shall at the time of such issuance, drawing or amendment be the administrative charge which such Issuing Bank is customarily charging for issuances of, drawings under or amendments of, letters of credit issued by it or such alternative amounts as may have been agreed upon in writing by the Company and such Issuing Bank. (f) Notwithstanding anything to the contrary contained in this Agreement or in the Existing Credit Agreement, all unpaid Fees under, and as defined in, the Existing Credit Agreement (including, without limitation, any Commitment Commission, Letter of Credit Fees and Facing Fees (as each such term is defined in the Existing Credit Agreement)) accrued to the Restatement Effective Date (immediately prior to giving effect thereto) shall be payable on the Restatement Effective Date. (g) The Company shall pay (x) to the Administrative Agent, for its own account, on the Restatement Effective Date, such fees of the Administrative Agent as have heretofore been agreed to in writing by the Company and the Agent and (y) to the Administrative Agent and each Bank, for their respective accounts, such other fees as have been agreed to in writing from time to time by the Company and the Administrative Agent when and as due. -25- 34 3.02 Voluntary Termination of Unutilized Commitments. (a) Upon at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent at its Notice Office, which notice the Administrative Agent shall promptly transmit to each of the Banks, the Company shall have the right, without premium or penalty, to terminate, in whole or in part, the Total Unutilized Revolving Loan Commitment, provided that any partial reduction pursuant to this Section 3.02 (a) shall be in integral multiples of $1,000,000. (b) In the event of certain refusals by a Bank as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Company may, subject to its compliance with the requirements of said Section 13.12(b), upon five Business Days' written notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Banks) terminate the Revolving Loan Commitment and D Term Loan Commitment of such Bank so long as all Loans, together with accrued and unpaid interest, Fees and all other amounts, owing to such Bank (other than amounts owing in respect of any Tranche of Term Loans maintained by such Bank, if such Term Loans are not being repaid pursuant to Section 13.12(b)) are repaid concurrently with the effectiveness of such termination (at which time Schedule I shall be deemed modified to reflect such changed amounts), and at such time, unless the respective Bank continues to act as a Bank with respect to any Tranche of Term Loans hereunder, such Bank shall no longer constitute a "Bank" for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.06, 4.04, 13.01 and 13.06), which shall survive as to such repaid Bank. (c) Any partial reduction to the Total Revolving Loan Commitment pursuant to this Section 3.02 shall be applied to reduce any then remaining commitment reduction which may be required pursuant to Section 3.03(f). 3.03 Mandatory Reduction of Commitments. (a) The Total Commitment (and the Commitment of each Bank) shall terminate on April 30, 1997 and the Existing Credit Agreement shall continue in effect without being amended and restated by this Agreement, unless the Restatement Effective Date has occurred on or before such date. (b) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total A Term Loan Commitment (and the A Term Loan Commitment of each Bank) shall terminate in its entirety on the Original Restatement Effective Date (after giving effect to the making of the A Term Loans on such date). -26- 35 (c) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total B Term Loan Commitment (and the B Term Loan Commitment of each Bank) shall terminate in its entirety on the Original Restatement Effective Date (after giving effect to the making of the B Term Loans on such date). (d) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total C Term Loan Commitment (and the C Term Loan Commitment of each Bank) shall terminate in its entirety on the Original Restatement Effective Date (after giving effect to the making of the C Term Loans on such date). (e) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total D Term Loan Commitment (and the D Term Loan Commitment of each Bank) shall (i) be reduced on each date on which D Term Loans are incurred (after giving effect to the making of the D Term Loans on such date), in an amount equal to the aggregate principal amount of D Term Loans incurred on such date, (ii) terminate in its entirety on the D Term Loan Termination Date (after giving effect to the making of D Term Loans on such date) and (iii) prior to the termination of the Total D Term Loan Commitment as provided in clauses (i) and (ii) above, be reduced from time to time to the extent required by Section 4.02. (f) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, unless the condition set forth in Section 5A.04 shall have theretofore been satisfied, on the one month anniversary of the Restatement Effective Date (i) the Total D Term Loan Commitment (and the D Term Loan Commitment of each Bank) shall terminate in its entirety and (ii) the Total Revolving Loan Commitment shall be permanently reduced by an amount equal to $10,000,000 (or, to the extent the amount of such required reduction (as such may be reduced pursuant to Section 3.02(c) or 3.03(j)) exceeds the Total Revolving Loan Commitment at such time, the Total Revolving Loan Commitment (and the Revolving Loan Commitment of each Bank) shall be terminated). (g) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving Loan Commitment of each Bank) shall terminate on the Revolving Loan Maturity Date. (h) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, on each date after the Restatement Effective Date upon which a mandatory prepayment of Term Loans pursuant to Section 4.02(B)(a) is -27- 36 required (and exceeds in amount the aggregate principal amount of Term Loans then outstanding) or would be required if Term Loans were then outstanding, (x) first, the Total D Term Loan Commitment shall be permanently reduced by the amount, if any, by which the amount required to be applied pursuant to said Section (determined as if an unlimited amount of Term Loans were actually outstanding) exceeds the aggregate principal amount of Term Loans then outstanding and (y) second, the Total Revolving Loan Commitment shall be permanently reduced by the amount, if any, by which the amount required to be applied pursuant to said Section (determined as if an unlimited amount of Term Loans were actually outstanding) exceeds the sum of (A) the amount by which the Total D Term Loan Commitment was reduced pursuant to clause (x) above and (B) the aggregate principal amount of Term Loans then outstanding. (i) Each partial reduction to the Total D Term Loan Commitment pursuant to this Section 3.03 (or pursuant to Section 4.02) shall be applied proportionately to reduce the D Term Loan Commitment of each Bank with such a Commitment. Each partial reduction to the Total Revolving Loan Commitment pursuant to this Section 3.03 shall be applied proportionately to reduce the Revolving Loan Commitment of each Bank with such a Commitment. (j) Each partial reduction to the Total Revolving Loan Commitment pursuant to Section 3.03(h) shall be applied to reduce any then remaining commitment reduction which may be required pursuant to Section 3.03(f). Section 4. Prepayments; Payments; Taxes. 4.01 Voluntary Prepayments. (a) The Company shall have the right to prepay the Loans, without premium or penalty, in whole or in part from time to time on the following terms and conditions: (i) the Company shall give the Administrative Agent prior to 12:00 Noon (New York time) at its Notice Office (x) at least one Business Day's prior written notice (or telephonic notice confirmed in writing) of its intent to prepay Base Rate Loans (or, if agreed with each Bank (in each such Bank's sole discretion) with a Revolving Loan Commitment, same day notice in the case of Revolving Loans provided such notice is given prior to 11:00 A.M. (New York time) on such Business Day) and (y) at least three Business Days' prior written notice (or telephonic notice confirmed in writing) of its intent to prepay Eurodollar Loans, whether A Term Loans, B Term Loans, C Term Loans, D Term Loans or Revolving Loans shall be prepaid, the amount of such prepayment and the Types of Loans to be prepaid and, in the case of Eurodollar -28- 37 Loans, the specific Borrowing or Borrowings pursuant to which made, which notice the Administrative Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an aggregate principal amount of at least $500,000 and, if greater, in integral multiples of $100,000 (or in the case of Revolving Loans, such lesser amount as may be agreed by each Bank (in each such Bank's sole discretion) with a Revolving Loan Commitment and the Administrative Agent), provided that no partial prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than $1,000,000; (iii) prepayments of Eurodollar Loans made pursuant to this Section 4.01(a) may only be made on the last day of an Interest Period applicable thereto; (iv) each prepayment of Term Loans pursuant to this Section 4.01(a) shall be required to be applied to repay A Term Loans, B Term Loans, C Term Loans and D Term Loans pro rata based on the then applicable A Facility Percentage, B Facility Percentage, C Facility Percentage and D Facility Percentage, provided that at the Company's option, on the Restatement Effective Date, the Company may prepay $4,312,500 of Term Loans, which prepayments may be applied to each Tranche of Term Loans in an amount equal to the amount of all remaining Scheduled Repayments for such Tranche of Term Loans during calendar year 1997 and which prepayments shall be applied to reduce all remaining Scheduled Repayments of each such Tranche during calendar year 1997; (v) each voluntary prepayment of Revolving Loans which is accompanied by a permanent reduction to the Total Revolving Loan Commitment (pursuant to Section 3.02(a) or as otherwise provided herein) shall be applied (x) first, to prepay the principal of outstanding Revolving Loans (it being understood that the Total Revolving Loan Commitment shall be reduced by the amount of each payment made pursuant to this clause (x)) and (y) second, to cash collateralize Letter of Credit Outstandings by depositing cash or Cash Equivalents in a cash collateral account to be established by the Administrative Agent to be held as security for the Letter of Credit Outstandings in an amount equal to the aggregate Letter of Credit Outstandings at such time (it being understood that the Total Revolving Loan Commitment shall be reduced by the amount of cash deposited in the cash collateral account as required by this clause (y)); and -29- 38 (vi) each voluntary prepayment of any Tranche of Term Loans pursuant to this Section 4.01(a) shall be applied (x) first, to the extent any portion of any Scheduled Repayment of such Tranche of Term Loans for the twelve months immediately following the date of such prepayment remains unpaid, to reduce the then remaining Scheduled Repayments of such Tranche of Term Loans to occur in such twelve month period in direct order of maturity and (y) second, to the extent remaining after the applications pursuant to the preceding clause (x), to reduce the then remaining Scheduled Repayments of such Tranche of Term Loans on a pro rata basis (based upon the then remaining principal amount of each such Scheduled Repayment of the respective Tranche of Term Loans after giving effect to all prior reductions thereto). (b) In the event of certain refusals by a Bank as provided in Section 13.12(b) to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks, the Company may, upon five Business Days' written notice to the Administrative Agent at its Notice Office (which notice the Administrative Agent shall promptly transmit to each of the Banks) repay all Loans, together with accrued and unpaid interest, Fees, and other amounts owing to such Bank (or owing to such Bank with respect to each Tranche which gave rise to the need to obtain such Bank's individual consent) in accordance with, and subject to the requirements of, said Section 13.12(b) so long as (A) in the case of the repayment of Revolving Loans of any Bank pursuant to this clause (b) the Revolving Loan Commitment of such Bank is terminated concurrently with such repayment (at which time Schedule I shall be deemed modified to reflect the changed Revolving Loan Commitments), (B) in the case of the repayment of D Term Loans of any Bank pursuant to this clause (b) any D Term Loan Commitment of such Bank is terminated concurrently with such repayment (at which time Schedule I shall be deemed modified to reflect the changed D Term Loan Commitments) and (C) in the case of the repayment of Loans of any Bank the consents required by Section 13.12(b) in connection with the repayment pursuant to this clause (b) have been obtained. 4.02 Mandatory Repayments. (A) Requirements: (a) If on any date the sum of the aggregate outstanding principal amount of the Revolving Loans (after giving effect to all other repayments thereof on such date) and the Letter of Credit Outstandings exceeds the Total Available Revolving Loan Commitment as then in effect, the Company shall prepay the principal of Revolving Loans in an amount equal to such excess. If, after giving effect to the prepayment of all outstanding Revolving Loans, the Letter of Credit Outstandings exceeds -30- 39 the Total Available Revolving Loan Commitment as then in effect, the Company shall pay to the Administrative Agent at its Payment Office on such date an amount of cash or Cash Equivalents equal to the amount of such excess, such cash or Cash Equivalents to be held as security for all Obligations of the Company hereunder in a cash collateral account to be established by the Administrative Agent. (b) If any Borrowing Base Certificate shall disclose the existence of a Borrowing Base Deficiency, the Company shall on the date of delivery thereof in accordance with Section 8.01(k) repay the principal of Revolving Loans in an aggregate amount equal to such Borrowing Base Deficiency. To the extent the Borrowing Base Deficiency exceeds the outstanding principal amount of Revolving Loans, the Company shall pay to the Administrative Agent at the Payment Office on such date an amount of cash or Cash Equivalents equal to the amount of such excess, such cash or Cash Equivalents to be held as security for all Obligations of the Company hereunder in a cash collateral account to be established by the Administrative Agent. (c) On any day on which the amount of cash and Cash Equivalents held by the Company exceeds the amounts permitted pursuant to Section 9.06(ii), the Company shall prepay the principal of Revolving Loans in an amount equal to such excess on the next succeeding Business Day. (d) In addition to any other mandatory repayments pursuant to this Section 4.02, on each date set forth below, the Company shall be required to repay that principal amount of A Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment as the same may be reduced in amount as provided in Sections 4.01 and 4.02(B)(a), an "A Term Loan Scheduled Repayment," and each such date, an "A Term Loan Scheduled Repayment Date"):
A Term Loan Scheduled Repayment Date Amount ------------------------ ------ May 31, 1997 $1,250,000 August 31, 1997 $1,250,000 November 30, 1997 $1,250,000 February 28, 1998 $1,250,000 May 31, 1998 $1,250,000 August 31, 1998 $1,250,000
-31- 40 November 30, 1998 $1,250,000 February 28, 1999 $1,250,000 May 31, 1999 $1,500,000 August 31, 1999 $1,500,000 November 30, 1999 $1,500,000 A Term Loan Maturity Date $1,500,000 (e) In addition to any other mandatory repayments pursuant to this Section 4.02, on each date set forth below, the Company shall be required to repay that principal amount of B Term Loans, to the extent then outstanding, as is set forth opposite such date (each such repayment as the same may be reduced in amount as provided in Sections 4.01 and 4.02(B)(a), a "B Term Loan Scheduled Repayment," and each such date, a "B Term Loan Scheduled Repayment Date"): B Term Loan Scheduled Repayment Date Amount ------------------------ ------ May 31, 1997 $50,000 August 31, 1997 $50,000 November 30, 1997 $50,000 February 28, 1998 $50,000 May 31, 1998 $50,000 August 31, 1998 $50,000 November 30, 1998 $50,000 February 28, 1999 $50,000 May 31, 1999 $50,000 August 31, 1999 $50,000 November 30, 1999 $50,000 February 28, 2000 $50,000 May 31, 2000 $2,100,000 August 31, 2000 $2,100,000 November 30, 2000 $2,500,000 February 28, 2001 $2,500,000 May 31, 2001 $2,500,000 August 31, 2001 $2,500,000 -32- 41 November 30, 2001 $2,500,000 B Term Loan Maturity Date $2,500,000 (f) In addition to any other mandatory repayments pursuant to this Section 4.02, on each date set forth below, the Company shall be required to repay that principal amount of C Term Loans, to the extent then outstanding, as set forth opposite such date (each such repayment as the same may be reduced in amount as provided in Sections 4.01 and 4.02(B)(a), a "C Term Loan Scheduled Repayment," and each such date, a "C Term Loan Scheduled Repayment Date"): C Term Loan Scheduled Repayment Date Amount ------------------------ ------ May 31, 1997 $137,500 August 31, 1997 $137,500 November 30, 1997 $137,500 February 28, 1998 $137,500 May 31, 1998 $137,500 August 31, 1998 $137,500 November 30, 1998 $137,500 February 28, 1999 $137,500 May 31, 1999 $137,500 August 31, 1999 $137,500 November 30, 1999 $137,500 February 28, 2000 $137,500 May 31, 2000 $137,500 August 31, 2000 $137,500 November 30, 2000 $137,500 February 28, 2001 $137,500 May 31, 2001 $137,500 August 31, 2001 $137,500 November 30, 2001 $137,500 February 28, 2002 $137,500 May 31, 2002 $5,837,500 August 31, 2002 $5,837,500 -33- 42 November 30, 2002 $5,837,500 February 28, 2003 $5,837,500 May 31, 2003 $7,087,500 August 31, 2003 $7,087,500 November 30, 2003 $7,087,500 C Term Loan Maturity $7,087,500 (g) In addition to any other mandatory repayments pursuant to this Section 4.02, on each date set forth below, the Company shall be required to repay that principal amount of D Term Loans, to the extent then outstanding, as set forth opposite such date (each such repayment as the same may be reduced in amount as provided in Sections 4.01 and 4.02(B)(a) and as provided below, a "D Term Loan Scheduled Repayment," and each such date, a "D Term Loan Scheduled Repayment Date"): D Term Loan Scheduled Repayment Date Amount ------------------------ ------ February 28, 1998 $112,500 May 31, 1998 $112,500 August 31, 1998 $112,500 November 30, 1998 $112,500 February 28, 1999 $112,500 May 31, 1999 $112,500 August 31, 1999 $112,500 November 30, 1999 $112,500 February 28, 2000 $112,500 May 31, 2000 $112,500 August 31, 2000 $112,500 November 30, 2000 $112,500 February 28, 2001 $112,500 May 31, 2001 $112,500 August 31, 2001 $112,500 -34- 43 November 30, 2001 $112,500 February 28, 2002 $112,500 May 31, 2002 $4,837,500 August 31, 2002 $4,837,500 November 30, 2002 $4,837,500 February 28, 2003 $4,837,500 May 31, 2003 $5,962,500 August 31, 2003 $5,962,500 November 30, 2003 $5,962,500 D Term Loan Maturity Date $5,962,500 ; provided in the event that the aggregate principal amount of D Term Loans incurred at or prior to the time that the D Term Loan Commitment is terminated in accordance with Sections 3.02 and/or 3.03 is less than $45,000,000, the amount of such deficiency shall be applied to reduce the then remaining D Term Loan Scheduled Repayments on a pro rata basis (based upon the then remaining principal amount of each such D Term Loan Scheduled Repayment after giving effect to all prior reductions thereto). (h) On each date after the Restatement Effective Date upon which the Company or any of its Subsidiaries receives any proceeds from any sale or issuance of equity (excluding proceeds of the Equity Financing and the Supplemental Equity Contribution) and until such time as the sum of all Net Cash Proceeds from sales or issuances of equity after the Restatement Effective Date exceeds $50,000,000 (excluding proceeds of the Equity Financing), an amount equal to 100% of the Net Cash Proceeds of the respective issuance shall be applied as provided in Section 4.02(B) and on each date after the Restatement Effective Date upon which the Company or any of its Subsidiaries receives any proceeds from any sale or issuance of equity (excluding proceeds of the Equity Financing) which, when added to the sum of the Net Cash Proceeds from all other such issuances of equity after the Restatement Effective Date, exceed $50,000,000 (excluding proceeds of the Equity Financing), an amount equal to the sum of (x) 100% of that portion of such Net Cash Proceeds which is less than or equal to the remainder of $50,000,000 less the sum of all other Net Cash Proceeds from the sale or issuance of equity after the Restatement Effective Date and (y) 50% of the remaining proceeds of such issuances shall be applied as provided in Section 4.02(B); provided that repayments pursuant to this Section 4.02(A)(h) based on the receipt of cash proceeds received by the Company from the issuance of Common Stock as a result of the exercise of options by employees or management of the Company ("Option Proceeds") shall not be required to be made on the date of the receipt thereof -35- 44 (unless such date of receipt is also a date specified below) but instead shall be required to be made on each date on which the amount of such Option Proceeds received during the period commencing on the later of (x) the Restatement Effective Date and (y) the immediately preceding date on which a principal repayment was made pursuant to this Section 4.02(A)(h) as a result of the receipt of Option Proceeds and ending on the date of determination (the "Option Proceeds Payment Period") equals or exceeds an amount equal to (I) $200,000 less (II) the amount of Option Proceeds received by the Company for the period commencing on the Original Effective Date and ending on the Restatement Effective Date, with the principal amount of the repayments required on each such date to equal 50% of the aggregate amount of Option Proceeds received on or before such date during the Option Proceeds Payment Period. Notwithstanding anything to the contrary contained in the foregoing, the Company will not be required to make any repayments with respect to the issuance of Common Stock as compensation in lieu of cash, or upon the cashless exercise of employee options. (i) On each date after the Restatement Effective Date upon which the Company or any of its Subsidiaries receives any proceeds from any incurrence by the Company or any of its Subsidiaries of Indebtedness for borrowed money (other than Indebtedness for borrowed money permitted by Section 9.05 as such Section is in effect on the Restatement Effective Date), an amount equal to 100% of the cash proceeds of the respective incurrence (net of any underwriting discounts and commissions and other reasonable costs associated therewith) shall be applied as provided in Section 4.02(B). (j) On each date after the Restatement Effective Date upon which the Company or any of its Subsidiaries receives proceeds from any sale of assets (including capital stock and securities other than capital stock all or the requisite portion of the proceeds from the sale of which is recaptured (or will be recaptured once the $200,000 threshold set forth in Section 4.02(A)(h) is achieved) pursuant to Section 4.02(A)(h)), but excluding (i) sales of inventory and Cash Equivalents in the ordinary course of business, (ii) sales of equipment which, in the reasonable judgment of the Company have become obsolete, worn out or uneconomic, in the ordinary course of business, the proceeds of which are used to purchase other equipment used in the Company's business within 180 days from the date of sale so long as the aggregate amount of Net Sale Proceeds excluded pursuant to this clause (ii) in any fiscal year does not exceed $250,000 and (iii) sales of receivables of the Company, provided that such receivables were reflected on the balance sheet of the Company on which the most recent Borrowing Base Certificate delivered pursuant to Section 8.01(k) prior to the date of such sale was based and such receivables were not included in such Borrowing Base Certificate as Eligible Receivables and so long as the aggregate face value of all such receivables to be excluded pursuant to this clause (iii) in any fiscal year does not exceed -36- 45 $250,000), an amount equal to 100% of the Net Sale Proceeds therefrom shall be applied as provided in Section 4.02(B). (k) On or prior to each Excess Cash Payment Date, an amount equal to 75% (or, if Consolidated EBITDA for the Company's fiscal year ending in 1998 or 1999 exceeds $36,000,000, 50% for such fiscal year and each fiscal year thereafter) of the Excess Cash Flow for the relevant Excess Cash Flow Recapture Period shall be applied as provided in Section 4.02(B). (B) Application: (a)(i) Each mandatory repayment of Loans pursuant to Sections 4.02(A)(h) through 4.02(A)(k), inclusive, shall be applied to repay the principal of outstanding A Term Loans, B Term Loans, C Term Loans and D Term Loans pro rata based on the then applicable A Facility Percentage, B Facility Percentage, C Facility Percentage and D Facility Percentage; (ii) each mandatory repayment of any Tranche of Term Loans arising pursuant to Sections 4.02(A)(h) or (k) shall be applied (x) first, to the extent any portion of any Scheduled Repayment of such Tranche of Term Loans for the twelve months immediately following the date of such prepayment remains unpaid, to reduce the then remaining Scheduled Repayments of such Tranche of Term Loans to occur in such twelve month period in direct order of maturity and (y) second, to the extent remaining after the applications pursuant to the preceding clause (x), to reduce each of the then remaining Scheduled Repayments of such Tranche of Term Loans on a pro rata basis (based upon the then remaining principal amount of each such Scheduled Repayment of the respective Tranche of Term Loans after giving effect to all prior reductions thereto) and (iii) each mandatory repayment of any Tranche of Term Loans arising pursuant to Sections 4.02(A)(i) or (j) shall be applied to reduce each of the then remaining Scheduled Repayments of such Tranche of Term Loans on a pro rata basis (based upon the then remaining principal amount of each such Scheduled Repayment of the respective Tranche of Term Loans after giving effect to all prior reductions thereto). (b) With respect to each repayment of Loans required by this Section 4.02, the Company may designate the Types of Loans which are to be repaid and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant to which made, provided that: (i) repayments of Eurodollar Loans pursuant to this Section 4.02 may only be made on the last day of an Interest Period applicable thereto unless all Eurodollar Loans of the respective Tranche with Interest Periods ending on such date of required repayment and all Base Rate Loans of the respective Tranche have been paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such -37- 46 Borrowing to an amount less than $1,000,000, such Borrowing shall immediately be converted into Base Rate Loans; and (iii) each repayment of any Loans made pursuant to a Borrowing shall be applied pro rata among such Loans. In the absence of a designation by the Company as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion. (c) Notwithstanding anything to the contrary contained elsewhere in this Agreement, (i) all then outstanding A Term Loans shall be repaid in full on the A Term Loan Maturity Date, (ii) all then outstanding B Term Loans shall be repaid in full on the B Term Loan Maturity Date, (iii) all then outstanding C Term Loans shall be repaid in full on the C Term Loan Maturity Date, (iv) all then outstanding D Term Loans shall be repaid in full on the D Term Loan Maturity Date and (v) all then outstanding Revolving Loans shall be repaid in full on the Revolving Loan Maturity Date. 4.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments made by the Company under this Agreement or any Note shall be made to the Administrative Agent for the account of the Bank or Banks entitled thereto not later than 12:00 Noon (New York time) on the date when due and shall be made in Dollars in immediately available funds at the Payment Office of the Administrative Agent. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable at the applicable rate during such extension. 4.04 Net Payments. (a) All payments made by the Company under this Agreement or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 4.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or profits of a Bank pursuant to the laws of the jurisdiction in which the principal office or applicable lending office of such Bank is located or any political subdivision or taxing authority thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imports, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Company agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this -38- 47 Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, then the Company agrees to reimburse each Bank, upon the written request of such Bank, for taxes imposed on or measured by the net income or profits of such Bank pursuant to the laws of the jurisdiction or any political subdivision or taxing authority thereof or therein in which the principal office or applicable lending office of such Bank is located and for any withholding of income or similar taxes imposed by the United States of America as such Bank shall determine are payable by such Bank in respect of such additional amounts so paid to or on behalf of such Bank pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Bank pursuant to this sentence. The Company will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Company. The Company agrees to indemnify and hold harmless each Bank, and reimburse such Bank upon its written request, for the amount of any Taxes so levied or imposed and paid by such Bank. (b) Each Bank that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Company and the Administrative Agent on or prior to the Restatement Effective Date, or in the case of a Bank that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.12 or 13.04 (unless the respective Bank was already a Bank hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Bank, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit D (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Bank agrees that from time to time after the Restatement Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Company and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Bank to a continued exemption from or -39- 48 reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Company and the Administrative Agent of its inability to deliver any such Form or Certificate, in which case such Bank shall not be required to deliver any such form or certificate pursuant to this Section 4.04(b). Notwithstanding anything to the contrary contained in Section 4.04(a), but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the Company shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Bank which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Bank has not provided to the Company U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Company shall not be obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Bank in respect of income or similar taxes imposed by the United States if (I) such Bank has not provided to the Company the Internal Revenue Service Forms required to be provided to the Company pursuant to this Section 4.04(b) or (II) in the case of a payment, other than interest, to a Bank described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), the Company agrees to pay additional amounts and to indemnify each Bank in the manner set forth in Section 4.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Restatement Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of income or similar Taxes. Section 5. Conditions Precedent to the Restatement Effective Date and to All Credit Events on the Restatement Effective Date. The occurrence of the Restatement Effective Date pursuant to Section 13.10, the obligation of each Bank to make Loans and the obligation of any Issuing Bank to issue Letters of Credit, in each case, on the Restatement Effective Date is subject, at the time of the making of such Loans or the issuance of such Letters of Credit, to the satisfaction of the following conditions: 5.01 Execution of Agreement; Notes. On or prior to the Restatement Effective Date (i) this Agreement shall have been executed and delivered in accordance with clause (i) of the first sentence of Section 13.10, and (ii) there shall have been delivered to the Administrative Agent for the account of each of the Banks with a D -40- 49 Term Loan Commitment and/or a Revolving Loan Commitment the appropriate D Term Note and/or Revolving Note executed by the Company, in each case in the amount, maturity and as otherwise provided herein. 5.02 Consummation of the Equity Financing. On the Restatement Effective Date, (i) the Company shall have received Net Cash Proceeds of at least $18,500,000 and the Equity Financing Notes in each case from the issuance by the Company of common stock to existing holders of common stock of the Company (the "Equity Financing"), (ii) the Banks shall have received true and correct copies of all agreements governing, or relating to, the Equity Financing (the "Equity Financing Documents") and (iii) all terms and conditions of the Equity Financing and the Equity Financing Documents shall be reasonably satisfactory to the Administrative Agent and the Required Banks. The Company shall have utilized the proceeds from the Equity Financing to make all payments then owing in connection with the Transaction and the Administrative Agent and the Banks shall have received an officers' certificate to such effect setting forth in reasonable detail the uses of such proceeds. The Equity Financing shall have occurred in accordance with the terms and conditions of the Equity Financing Documents and all applicable law. 5.03 Repayment of Certain Existing Loans; Payment of Fees; etc. On or prior to the Restatement Effective Date or concurrently with the initial Credit Event on the Restatement Effective Date, the Company shall have (x) repaid in full (i) all outstanding Existing Revolving Loans, (ii) all interest accrued to the Restatement Effective Date on all Existing Revolving Loans, (iii) each of the A Term Loan Scheduled Repayments, B Term Loan Scheduled Repayments and C Term Loan Scheduled Repayments (as each such term is defined in the Existing Credit Agreement) which were (a) originally due and payable under the terms of the Existing Credit Agreement as executed on February 26, 1996 and (b) postponed until June 30, 1997, by the terms of the Second Amendment to the Existing Credit Agreement (collectively, the "Deferred Loans") and (iv) all interest accrued to the Restatement Effective Date on the Deferred Loans, and (y) paid (I) all amounts contemplated by Sections 3.01(f) and (g) of this Agreement to the extent then due and (II) all other costs, fees and expenses owing to any of the Existing Banks and/or the Existing Agent, respectively, under the Existing Credit Agreement, to the extent then due in accordance with the terms of the Existing Credit Agreement. Except as provided in Section 2.01(a), no Letters of Credit (as defined in the Existing Credit Agreement) issued under the Existing Credit Agreement shall be outstanding and all Unpaid Drawings (as defined in the Existing Credit Agreement) relating to Letters of Credit (as defined in the Existing Credit Agreement) shall have been paid in full, together with all interest, fees and other amounts applicable thereto. After giving effect to the payments pursuant to this Section, no Revolving Loans shall be outstanding on the Restatement Effective Date -41- 50 after giving effect to the transactions contemplated hereby and there shall be $16,000,000 of A Term Loans outstanding, $19,800,000 of B Term Loans outstanding and $54,450,000 of C Term Loans outstanding. 5.04 Officer's Certificate. On the Restatement Effective Date, the Administrative Agent shall have received a certificate dated the Restatement Effective Date signed on behalf of the Company by the President or any Vice President of the Company stating that all of the conditions in Sections 5.02, 5.03, 5.12, 5.13, 5.18, 5.19, 6.01, 6.03 and 6.04 have been satisfied on such date, provided the certificate shall not be required to certify as to the acceptability of any items to the Administrative Agent and/or the Required Banks or as to whether the Administrative Agent and/or the Required Banks are satisfied with any of the matters described in said Sections. 5.05 Opinion of Counsel. On the Restatement Effective Date, the Administrative Agent shall have received from Sonnenschein Nath & Rosenthal, special counsel to the Company, an opinion addressed to the Administrative Agent and each of the Banks and dated the Restatement Effective Date, which shall be in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks and which shall cover the matters set forth in Exhibit E and such other matters incident to the transactions contemplated herein as the Administrative Agent may reasonably request. 5.06 Corporate Documents; Proceedings. (a) On the Restatement Effective Date, the Administrative Agent shall have received a certificate, dated the Restatement Effective Date, signed by the President or any Vice President of the Company, and attested to by the Secretary or any Assistant Secretary of the Company, in the form of Exhibit F with appropriate insertions, together with copies of the Certificate of Incorporation and By-Laws of the Company and the resolutions of the Company referred to in such certificate, and the foregoing shall be acceptable to the Administrative Agent and the Required Banks in their sole discretion. (b) All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Documents shall be satisfactory in form and substance to the Administrative Agent and the Required Banks, and the Administrative Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental approvals, good standing certificates and bring-down telegrams, if any, which the Administrative Agent or the Required Banks reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. -42- 51 5.07 Employee Benefit Plans; Shareholders' Agreements; Collective Bargaining Agreements; Tax Sharing Agreements; Debt Agreements; CPC Contract. On or prior to the Restatement Effective Date, there shall have been delivered to the Administrative Agent true and correct copies, certified as true and complete by an appropriate officer of the Company, of (i) all employee benefit plans or any other similar plans or arrangements for the benefit of employees of the Company and any profit sharing plans and deferred compensation plans of the Company (collectively, the "Employee Benefit Plans") other than Stock Option Plans, (ii) all agreements entered into by the Company governing the terms and relative rights of its capital stock and any agreements entered into by shareholders relating to the Company with respect to their capital stock (collectively, the "Shareholders' Agreements"), (iii) all collective bargaining agreements applying or relating to any employee of the Company (collectively, the "Collective Bargaining Agreements"), (iv) any tax sharing, disaffiliation, tax allocation and other similar agreements entered into by the Company (collectively, the "Tax Sharing Agreements"), (v) all agreements evidencing or relating to the Existing Obligations of the Company (collectively, the "Debt Agreements") and (vi) the CPC Contract; all of which Employee Benefit Plans (other than Stock Option Plans), Shareholders' Agreements, Collective Bargaining Agreements, Tax Sharing Agreements, Debt Agreements and the CPC Contract, shall be in form and substance satisfactory to the Administrative Agent and the Required Banks and shall be in full force and effect on the Restatement Effective Date (it being understood that the CPC Contract substantially in the form of the draft of February 27, 1997, previously provided to the Administrative Agent, is satisfactory); provided, however, that only those Employee Benefit Plans (other than Stock Option Plans), Shareholders' Agreements, Collective Bargaining Agreements, Tax Sharing Agreements and Debt Agreements which were not in existence on the Original Effective Date or, if in existence on the Original Effective Date, which have been changed in any material respect since such date, shall be required to be delivered pursuant to this Section 5.07. 5.08 Capital Expenditure Plan. On or prior to the Restatement Effective Date, there shall have been delivered to the Banks a capital expenditure plan (the "Capital Expenditure Plan") to effect the Permitted Capital Expenditures in order to create capacity to manufacture and distribute pasta in the volumes contemplated as of the Restatement Effective Date to be sold pursuant to the CPC Contract and to meet other projected increases in manufacturing and distribution capacity requirements after the Restatement Effective Date, which Capital Expenditure Plan (x) has been approved by the Board of Directors of the Company, (y) sets forth in reasonable detail the specific construction plan, timing and costs of the Permitted Capital Expenditures and (z) demonstrates that the Permitted Capital Expenditures will be sufficient to meet the production and delivery requirements contemplated as of the Restatement Effective Date to be sold pursuant to the CPC Contract and that the total cost of such Permitted -43- 52 Capital Expenditures will not exceed $60,000,000. All of the above shall be satisfactory to the Administrative Agent and the Required Banks. 5.09 Pledge Agreement. On the Restatement Effective Date, the Company shall have duly authorized, executed and delivered an amended and restated pledge agreement substantially in the form of Exhibit G hereto (as modified, amended or supplemented from time to time in accordance with the terms thereof and hereof, the "Pledge Agreement") and shall have delivered to the Collateral Agent, as pledgee thereunder, all of the Pledged Securities, if any, referred to in the Pledge Agreement and then owned by the Company, (x) endorsed in blank in the case of promissory notes constituting Pledged Securities and (y) together with executed and undated irrevocable stock powers in the case of capital stock constituting Pledged Securities. 5.10 Security Agreement. On the Restatement Effective Date, (i) the Company shall have duly authorized, executed and delivered an amended and restated security agreement in substantially the form of Exhibit H hereto (as modified, supplemented or amended from time to time in accordance with the terms thereof and hereof, the "Security Agreement"), (ii) no filings, recordings, registrations or other actions (other than those made, obtained or taken on or prior to the Restatement Effective Date) shall be necessary or, in the opinion of the Collateral Agent, desirable to maintain the perfection and priority of the security interests granted pursuant to the Security Agreement in the Security Agreement Collateral covered thereby, and (iii) the Banks shall have received: (a) proper financing statements (Form UCC-1 or such other financing statements or similar notices as shall be required by local law) fully executed for filing under the UCC or other appropriate filing offices of each jurisdiction as may be necessary or, in the opinion of the Collateral Agent, desirable to further perfect the security interests purported to be created by the Security Agreement; (b) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, each of a recent date listing all effective financing statements that name the Borrower or any of its Subsidiaries as debtor and that are filed in the jurisdictions referred to in clause (a) above, together with copies of such financing statements that name the Company as debtor (none of which shall cover the Collateral except (x) those with respect to which appropriate termination statements executed by the secured lender thereunder have been delivered to the Administrative Agent and (y) to the extent evidencing Permitted Liens); -44- 53 (c) evidence of the completion of all recordings and filings of, or with respect to, the Security Agreement as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by the Security Agreement; and (d) evidence that all other actions necessary or, in the opinion of the Collateral Agent, desirable to perfect and protect the security interests purported to be created by the Security Agreement have been taken. 5.11 Mortgages; Title Insurance; Appraisal. (a) On the Restatement Effective Date, the Collateral Agent shall have received: (i) fully executed counterparts of the amendments (the "Existing Mortgage Amendments") to the mortgage and deed of trust delivered pursuant to the Original Credit Agreement and Existing Credit Agreement as amended immediately prior to the Restatement Effective Date (the "Existing Mortgages") in form and substance reasonably satisfactory to the Administrative Agent, which Existing Mortgages shall cover such of the Real Property owned by the Company as shall be listed in Part A of Schedule III and designated as the existing mortgaged properties (each an "Existing Mortgaged Property" and collectively, the "Existing Mortgaged Properties"), together with evidence that counterparts of the Existing Mortgage Amendments have been delivered to the title insurance company insuring the Liens of the Existing Mortgages for recording in all places to the extent necessary or desirable, in the judgment of the Collateral Agent, effectively to maintain valid and enforceable first priority mortgage liens on the Existing Mortgaged Properties in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors; (ii) endorsements of the existing Mortgage Policies (the "Endorsements") in a form and in amounts satisfactory to the Administrative Agent and the Required Banks, assuring the Collateral Agent that the Existing Mortgages, as amended by the Existing Mortgage Amendments, are valid and enforceable first priority mortgage liens on the Existing Mortgaged Properties, free and clear of all defects, encumbrances and other Liens except Permitted Encumbrances, and such Endorsements shall be in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks; (iii) real estate appraisals, in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks, in connection with the Existing Mortgaged Properties, dated a recent date acceptable to the -45- 54 Collateral Agent from appraisers reasonably satisfactory to the Administrative Agent, which appraisals shall comply with all applicable law, including the requirements set forth in 12 C.F.R., Part 34-Subpart C, or any successor or similar statute, rule, regulation, guideline or order and which appraisals shall be certified by the appraiser as complying with all such applicable law; and (b) On the Restatement Effective Date, (i) the Existing Mortgages shall remain in full force and effect, and (ii) no filings, recordings, registrations or other actions (other than those made, obtained or taken on or prior to the Restatement Effective Date referred to in the preceding clause (a)) shall be necessary or, in the opinion of the Collateral Agent, desirable to maintain the perfection and priority of the mortgage liens on the Existing Mortgaged Properties granted pursuant to the Existing Mortgages. 5.12 Adverse Change; Approvals; etc. (a) Since September 27, 1996, nothing shall have occurred (and the Banks shall have become aware of no facts or conditions not previously known) which the Administrative Agent or the Required Banks shall reasonably determine (i) has, or could have, a material adverse effect on the rights or remedies of the Banks or the Administrative Agent, or on the ability of the Company to perform its obligations to the Administrative Agent and the Banks under this Agreement or any other Credit Document, (ii) which has, or would reasonably be expected to have, a Material Adverse Effect or (iii) indicates the inaccuracy in any material respect of the information previously provided to the Administrative Agent or the Banks (taken as a whole) or indicates that the information previously provided omitted to disclose any material information. (b) On or prior to the Restatement Effective Date, all necessary governmental (domestic and foreign) and third party approvals in connection with this Agreement and the Transaction and the transactions contemplated by the Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of all or any part of the Transaction or the other transactions contemplated by the Documents and otherwise referred to herein or therein. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon all or any part of the Transaction, the transactions contemplated by the Documents or otherwise referred to herein or therein or the making of the Loans or the issuance of Letters of Credit. -46- 55 5.13 Litigation. On the Restatement Effective Date, no litigation by any entity (private or governmental) shall be pending or, to the best knowledge of the Company, threatened with respect to this Agreement, any other Document or any documentation executed in connection herewith or the transactions contemplated hereby (including, without limitation, the Transaction), or with respect to any of the Existing Obligations or the obligations being refinanced in connection with the consummation of the Transaction or which the Administrative Agent or the Required Banks shall determine could reasonably be expected to have a materially adverse effect on the Transaction or the business, property, assets, nature of assets, liabilities, condition (financial or otherwise) or prospects of the Company. 5.14 Fees; etc. On the Restatement Effective Date, the Company shall have paid to the Administrative Agent and the Banks all reasonable costs, fees and expenses (including, without limitation, all legal fees and expenses) payable to the Administrative Agent and the Banks, respectively, to the extent then due. 5.15 Asset Appraisal; Insurance; Solvency Certificate. On the Restatement Effective Date, the Banks shall have received (i) an "in-use" appraisal of the Company's Manufacturing Facilities which shall be from an appraiser, and in form, scope and substance, reasonably satisfactory to the Administrative Agent and the Required Banks, (ii) analyses and evidence (including, without limitation, certificates with respect to each insurance policy listed on Schedule IX) of insurance complying with the requirements of Section 8.03 for the business and properties of the Company (including, without limitation, business interruption insurance), in form, scope and substance reasonably satisfactory to the Administrative Agent and the Required Banks and naming the Collateral Agent and the Banks as an additional insured and the Collateral Agent as loss payee and stating that such insurance shall not be cancelled or revised without thirty days prior written notice by the insurer to the Administrative Agent and (iii) a certificate in the form of Exhibit I addressed to the Administrative Agent and each of the Banks and dated the Restatement Effective Date, from the Chief Financial Officer of the Company, providing the opinion of the Chief Financial Officer of the Company that, after giving effect to the Transaction and the other transactions contemplated hereby and the related financing thereof as contemplated hereby, the Company is not insolvent and will not be rendered insolvent by the indebtedness incurred in connection with the transactions contemplated hereby, will not be left with unreasonably small capital with which to engage in its businesses and will not have incurred debts beyond its ability to pay such debts as they mature and become due. 5.16 Consent Letter. On the Restatement Effective Date, the Administrative Agent shall have received a letter from CT Corporation System, presently located at 1633 Broadway, New York, New York 10019, substantially in the -47- 56 form of Exhibit J hereto, indicating its consent to its appointment by the Company as its agent to receive service of process as specified in Section 13.08 of this Agreement. 5.17 Financial Statements. (a) On or prior to the Restatement Effective Date, the Administrative Agent and each of the Banks shall have received an unaudited pro forma balance sheet of the Company at February 21, 1997 prepared in accordance with generally accepted accounting principles (after giving effect to the Transaction and the related financings thereof as contemplated hereby), which pro forma balance sheet (including, without limitation, the amount of net worth of the Company at such date) shall be in the form attached hereto as Exhibit K. (b) On or prior to the Restatement Effective Date, the Administrative Agent and the Banks shall have received the financial projections (the "Projections") set forth on Exhibit L hereto, which Projections shall include the making of the Capital Expenditures contemplated by the Capital Expenditure Plan and the financing thereof in accordance with the terms of this Agreement, for the five fiscal years of the Company ended after the Restatement Effective Date, which Projections, and the supporting assumptions and explanations thereto, shall be reasonably satisfactory in scope and in form and substance to the Administrative Agent and the Required Banks. 5.18 Existing Indebtedness. On the Restatement Effective Date and after giving effect to the Transaction and the other transactions contemplated hereby that are to be consummated on the Restatement Effective Date and the related financing therefor, the Company shall not have any Indebtedness outstanding except for (i) the Loans, (ii) the Letters of Credit and (iii) the Existing Obligations. The Existing Obligations shall not have been incurred in connection with, or in contemplation of, the Transaction and the other transactions contemplated hereby, and the terms and conditions of the Existing Obligations shall be satisfactory to the Administrative Agent and the Required Banks. All of the Existing Obligations shall remain outstanding after the consummation of the Transaction and the other transactions contemplated hereby that are to be consummated on the Restatement Effective Date and the related financing therefor, without any default or events of default existing thereunder or arising as a result of the consummation of such transactions contemplated hereby. Except as may have been requested or approved by the Administrative Agent and the Required Banks, there shall not be any amendments or modifications to the agreements and instruments governing or evidencing the Existing Obligations. 5.19 Subsidiaries. On the Restatement Effective Date, the Company shall have no Subsidiaries. -48- 57 5.20 Borrowing Base Certificate. On the Restatement Effective Date, the Company shall have delivered to the Administrative Agent the Borrowing Base Certificate at March 28, 1997 meeting the requirements of Section 8.01(k) herein. Section 5A. Conditions Precedent to the Incurrence of D Term Loans. The obligation of each Bank to make D Term Loans is subject, at the time of the making of each D Term Loan, to the satisfaction of the following conditions: 5A.01 Restatement Effective Date. All of the conditions to the making of Loans on the Restatement Effective Date shall have been met in accordance with Section 5. 5A.02 D Term Loan Certificate. The Administrative Agent shall have received an officer's certificate in the form of Exhibit M, with appropriate insertions and deletions (each, a "D Term Loan Certificate"), dated the date of such Credit Event, signed on behalf of the Company by the President or any Vice President of the Company (i) stating that all the conditions in this Section 5A and Sections 6.01 and 6.03 have been satisfied on such date both before and after giving effect to such Borrowing (provided the certificate shall not be required to certify as to the acceptability of any items to the Administrative Agent and/or the Required Banks or as to whether the Administrative Agent and/or the Required Banks are satisfied with any of the matters described in said Sections), (ii) certifying in reasonable detail the Capital Expenditures for which the proceeds of the D Term Loans are to be used and (iii) certifying that such Capital Expenditures constitute Permitted Capital Expenditures and will be made in accordance with, and as contemplated by, Section 9.08(b) and the Capital Expenditure Plan. 5A.03 Approvals. All necessary governmental (domestic and foreign) and third party approvals required in connection with the respective Borrowing of D Term Loans and related Permitted Capital Expenditures shall have been obtained and remain in effect. 5A.04 Consummation of the Additional Equity Financing. The Company shall have received additional Net Cash Proceeds from the Equity Financing in an amount that, when added to the Net Cash Proceeds received by the Company pursuant to Section 5.02, equals at least $20,750,000. The Company shall have utilized the full amount of all proceeds received in connection with the Equity Financing to make payments owing in connection with the Transaction and Permitted Capital Expenditures and the Administrative Agent and the Banks shall have received an officers' certificate to such effect setting forth in reasonable detail the uses of such proceeds. -49- 58 Section 6. Conditions Precedent To the Restatement Effective Date and To All Credit Events. The occurrence of the Restatement Effective Date pursuant to Section 13.10, the obligation of each Bank to make Loans (including Loans made on the Restatement Effective Date) and the obligation of any Issuing Bank to issue any Letter of Credit, is subject, at the time of each such Credit Event (except as hereinafter indicated), to the satisfaction of the following conditions: 6.01 No Default; Representations and Warranties. On the Restatement Effective Date and at the time of each Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the Restatement Effective Date and/or the date of making of such Loans or the issuance of such Letter of Credit, provided that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct at the time of each such Credit Event only as of such specified date. 6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the making of each Loan, the Administrative Agent shall have received a Notice of Borrowing meeting the requirements of Section 1.03. (b) Prior to the issuance of each Letter of Credit (other than an Existing Letter of Credit), the Administrative Agent and the respective Issuing Bank shall have received a Letter of Credit Request meeting the requirements of Section 2.03. 6.03 Adverse Change; etc. At the time of each such Credit Event and also after giving effect thereto, nothing shall have occurred (and the Banks shall have become aware of no facts or conditions not previously known) which the Administrative Agent or the Required Banks shall reasonably determine (i) has, or could have, a material adverse effect on the rights or remedies of the Banks or the Administrative Agent, or on the ability of the Company to perform its obligations to the Administrative Agent and the Banks under this Agreement or any other Credit Document, (ii) has, or could reasonably be expected to have, a Material Adverse Effect or (iii) indicates the inaccuracy, at the time provided, in any material respect of the information previously provided to the Administrative Agent or the Banks (taken as a whole) or indicates, that the information previously provided, at the time provided, omitted to disclose any material information. 6.04 Litigation. At the time of each such Credit Event and also after giving effect thereto, no litigation by any entity (private or governmental) shall be -50- 59 pending or, to the best knowledge of the Company, threatened with respect to this Agreement, any other Document or any documentation executed in connection herewith or the transactions contemplated hereby, or with respect to any Existing Obligations or which the Administrative Agent or the Required Banks shall determine could reasonably be expected to have a Material Adverse Effect. 6.05 Subsequent Legal Opinions. If, at the time of any Credit Event subsequent to the Restatement Effective Date, the Administrative Agent or the Required Banks shall have (i) reasonably determined that any facts, circumstances or conditions might exist which could adversely affect either (x) the ability of counsel to issue at such time the legal opinions originally delivered pursuant to Section 5.05 or (y) the perfection or priority of the security interest created pursuant to the Security Documents and (ii) requested same, the Administrative Agent shall have received from counsel (who shall be reasonably satisfactory to the Administrative Agent and the Required Banks), an opinion or opinions in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks, addressed to the Banks and dated the date of such Credit Event, covering such of the matters set forth in the opinion of counsel theretofore required to be delivered pursuant to Section 5.05 as the Administrative Agent or the Required Banks, as the case may be, shall specify or such other matters incident to the transactions contemplated herein as the Administrative Agent or the Required Banks, as the case may be, may reasonably request. The occurrence of the Restatement Effective Date and the acceptance of the benefits of each Credit Event shall constitute a representation and warranty by the Company to each of the Banks that all the applicable conditions specified in Sections 5, 5A and 6 exist as of that time. All of the Notes, certificates, legal opinions and other documents and papers referred to in Sections 5, 5A and 6, unless otherwise specified, shall be satisfactory in form and substance to the Administrative Agent and the Required Banks and shall be delivered to the Administrative Agent at its Notice Office for the account of each of the Banks and, except for the Notes, in sufficient counterparts for each of the Banks. Section 7. Representations, Warranties and Agreements. In order to induce the Banks to enter into this Agreement and to make the Loans, and issue (or participate in) the Letters of Credit as provided herein, the Company makes the following representations, warranties and agreements as of the Restatement Effective Date and as of the date of each subsequent Credit Event, all of which shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans and issuance of the Letters of Credit, with the occurrence of each Credit Event on or after the Restatement Effective Date being deemed to constitute a representation and warranty that the matters specified in this Section 7 are true and correct on and as of -51- 60 the Restatement Effective Date and on and as of the date of each such Credit Event, provided that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct on the date of each Credit Event but only as of such specified date: 7.01 Corporate Status. Each of the Company and each of its Subsidiaries (i) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage in and (iii) is duly qualified and is authorized to do business and is in good standing in (x) Delaware, Missouri and South Carolina and (y) in each other jurisdiction where the ownership, leasing or operation of property or the conduct of its business requires such qualifications, except in the case of clause (y) for such failures to be so qualified which, in the aggregate, would not have a Material Adverse Effect. 7.02 Corporate Power and Authority. The Company has the corporate power and authority to execute, deliver and perform the terms and provisions of each of the Documents to which it is party and has taken all necessary corporate action to authorize the execution, delivery and performance by it of each of such Documents. The Company has duly executed and delivered each of the Documents to which it is party, and each of such Documents constitutes its legal, valid and binding obligation enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 7.03 No Violation. Neither the execution, delivery or performance by the Company or any of its Subsidiaries of the Documents to which it is a party (including, without limitation, the granting of Liens pursuant to the Security Documents), nor compliance by it with the terms and provisions thereof, nor the consummation of the transactions contemplated therein (i) will contravene any provision of any law, statute, rule or regulation binding on or applicable to the Company or any of its Subsidiaries or any order, writ, injunction or decree of any court or governmental instrumentality binding on or applicable to the Company or any of its Subsidiaries, (ii) will conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Security Documents) upon any of the property or assets of the Company or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other agreement, contract or instrument, to which the -52- 61 Company or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject or (iii) will violate any provision of the Certificate of Incorporation or By-Laws of the Company or any of its Subsidiaries. 7.04 Governmental Approvals. No order, consent, approval, license, authorization or validation of, or filing, recording or registration with (except as have been obtained or made on or prior to the Restatement Effective Date), or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, (i) the execution, delivery and performance of any Document or (ii) the legality, validity, binding effect or enforceability of any such Document. 7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc. (a) (i) The balance sheet of the Company at September 27, 1996 and the related statements of operations, cash flows and shareholders' equity of the Company for the fiscal year or other period ended on such date, as the case may be, and copies of which have hereto been furnished to the Banks prior to the Restatement Effective Date which have been examined by Ernst & Young, independent certified public accountants, who delivered an unqualified opinion in respect thereto, and (ii) the pro forma (after giving effect to the Transaction, the related financing thereof and the other transactions contemplated hereby and thereby) balance sheet of the Company at February 21, 1997, copies of which have heretofore been furnished to the Banks prior to the Restatement Effective Date, present fairly the financial condition of the Company at the date of such balance sheets and the results of the operations and the cash flows and shareholders' equity of the Company for such fiscal year or other period, as the case may be (or, in the case of the pro forma balance sheet, presents a good faith estimate of the pro forma financial condition of the Company (after giving effect to the Transaction, the related financing thereof and the other transactions contemplated hereby and thereby) at the date thereof). All such financial statements have been prepared in accordance with generally accepted accounting principles and practices consistently applied (except as may be indicated in the notes thereto) subject to normal year-end adjustments. Since September 27, 1996, there has been no material adverse change in the business, property, assets, nature of assets, liabilities, condition (financial or otherwise) or prospects of the Company or of the Company and its Subsidiaries taken as a whole. (b) On and as of the Restatement Effective Date, after giving effect to the Transaction and to all Indebtedness (including the Loans and the Letters of Credit) being incurred, and to be incurred (and the use of proceeds thereof), and Liens created, and to be created, by the Company in connection with the transactions contemplated hereby, (i) the sum of the assets, at a fair valuation, of the Company will -53- 62 exceed its debts; (ii) the Company has not incurred nor intends to, nor believes that it will, incur debts beyond its ability to pay such debts as such debts mature; and (iii) the Company will have sufficient capital with which to conduct its business. For purposes of this Section 7.05(b) "debt" means any liability on a claim, and "claim" means (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. (c) Except as fully reflected in the financial statements and the notes related thereto delivered pursuant to Section 7.05(a) and on Schedule IV, there were as of the Restatement Effective Date (and after giving effect to the Transaction and the other transactions contemplated hereby) no liabilities or obligations with respect to the Company of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in the aggregate, would be material to the Company. As of the Restatement Effective Date (and after giving effect to the Transaction and the other transactions contemplated hereby), the Company does not know of any basis for the assertion against the Company of any liability or obligation of any nature whatsoever that is not fully reflected in the financial statements delivered pursuant to Section 7.05(a) and on Schedule IV which, either individually or in the aggregate, could be material to the Company. (d) On and as of the Restatement Effective Date, the Projections attached hereto as Exhibit L, which Projections shall include the making of the Capital Expenditures contemplated by the Capital Expenditure Plan and the financing thereof in accordance with the terms of this Agreement, have been prepared on a basis consistent with the financial statements referred to in Section 7.05(a)(i) and are based on good faith estimates and assumptions made by the management of the Company, and there are no statements or conclusions in any of the Projections which are based upon or include information known to the Company to be misleading or which fail to take into account material information regarding the matters reported therein. On the Restatement Effective Date, the Company believed that the Projections were reasonable and attainable, it being understood that uncertainty is inherent in any forecasts or projections and that no assurance can be given that the results set forth in the Projections will actually be obtained. 7.06 Litigation. There are no actions, suits or proceedings pending or, to the best knowledge of the Company, threatened (i) with respect to any Document, -54- 63 (ii) with respect to any Indebtedness or preferred stock of the Company or any of its Subsidiaries or (iii) that are reasonably likely to have a Material Adverse Effect. 7.07 True and Complete Disclosure. All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Company or any of its Subsidiaries in writing to any Bank (including, without limitation, all information contained in the Documents) (other than the Projections as to which Section 7.05(d) applies) for purposes of or in connection with this Agreement or any transaction contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of the Company or any of its Subsidiaries in writing to any Bank for purposes of or in connection with this Agreement or any transaction contemplated herein will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. 7.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the D Term Loans incurred on or after the Restatement Effective Date shall be used promptly by the Company to make Permitted Capital Expenditures. (b) All proceeds of Revolving Loans shall be used by the Company for working capital and general corporate purposes of the Company. (c) No part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. Neither the making of any Loan nor the use of the proceeds thereof nor the occurrence of any other Credit Event will violate or be inconsistent with the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. 7.09 Tax Returns and Payments. Each of the Company and each of its Subsidiaries has timely filed or caused to be timely filed with the appropriate taxing authority, all returns, statements, forms and reports for taxes (the "Returns") required to be filed by or with respect to the income, properties or operations of the Company and/or any of its Subsidiaries. The Returns accurately reflect all liability for taxes of the Company and its Subsidiaries for the periods covered thereby. Each of the Company and each of its Subsidiaries has paid all taxes payable by it before they have become delinquent other than those contested in good faith and for which adequate reserves have been established. There is no action, suit, proceeding, investigation, audit, or claim now pending or, to the knowledge of the Company, threatened by any -55- 64 authority regarding any taxes relating to the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of the Company or any of its Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of the Company or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. Neither the Company nor any of its Subsidiaries have provided, with respect to themselves or property held by them, any consent under Section 341 of the Code. Neither the Company nor any of its Subsidiaries has incurred, or will incur, any tax liability in connection with the Transaction or the other transactions contemplated hereby. 7.10 Compliance with ERISA. Each Plan is in substantial compliance with ERISA and the Code; no Reportable Event has occurred with respect to a Plan; no Plan is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no Plan has an accumulated or waived funding deficiency, has permitted decreases in its funding standard account or has applied for an extension of any amortization period within the meaning of Section 412 of the Code; neither the Company nor any of its Subsidiaries nor any ERISA Affiliate has incurred any material liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971, 4975 or 4980 of the Code or expects to incur any liability under any of the foregoing Sections with respect to any Plan; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan; no condition exists which presents a material risk to the Company or any of its Subsidiaries or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the Company and its Subsidiaries and its ERISA Affiliates would not have any liability to all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date of any Credit Event; no Lien imposed under the Code or ERISA on the assets of the Company or any of its Subsidiaries or any ERISA Affiliate exists or is likely to arise on account of any Plan; and the Company and its Subsidiaries do not maintain or contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA) the obligations with respect to which could reasonably be expected to have a material adverse effect on the ability of the Company to perform its obligations under this Agreement. For purposes of this Section 7.10, the term "ERISA Affiliate" shall not include any Person that would otherwise be included within such term solely by reason of MSLEF II's -56- 65 ownership interest in such Person and the term Plan shall not include any Plan which was ever maintained by any such ERISA Affiliate. 7.11 Security Documents. (a) The provisions of the Security Agreement are effective to create in favor of the Collateral Agent for the benefit of the Secured Creditors a legal, valid and enforceable security interest in all right, title and interest of the Company in the Security Agreement Collateral described therein, and the Security Agreement creates a fully perfected first lien on, and security interest in, all right, title and interest of the Company in all of the Security Agreement Collateral described therein, subject to no other Liens other than Permitted Liens. The recordation in the United States Patent and Trademark Office of assignments for security made pursuant to the Security Agreement together with filings on Form UCC-1 made pursuant to the Security Agreement, was, and continues to be, effective under Federal law to perfect the security interest granted to the Collateral Agent in the trademarks and patents covered by the Security Agreement, and the filing of an assignment for security made pursuant to the Security Agreement with the United States Copyright Office, together with filings on Form UCC-1 made pursuant to the Security Agreement was, and continues to be, effective under Federal law to perfect the security interest granted to the Collateral Agent in the copyrights covered by the Security Agreement. The Company has good and marketable title to all Security Agreement Collateral described in the Security Agreement, free and clear of all Liens except those described above in this clause (a). (b) The security interests created in favor of the Collateral Agent, as Pledgee for the benefit of the Secured Creditors under the Pledge Agreement, constitute first perfected security interests in the Pledged Securities, if any, subject to no security interests of any other Person. No filings or recordings (including, without limitation, as a result of the amendment and restatement of the Existing Credit Agreement pursuant to this Agreement) are required in order to perfect the security interests created in the Pledged Securities under the Pledge Agreement. (c) The Existing Mortgages (as amended by the Existing Mortgage Amendments), and, at all times after the execution and delivery thereof, the Additional Mortgages, create, as security for the obligations purported to be secured thereby, a valid and enforceable perfected security interest in and Lien on all of the Existing Mortgaged Properties and Additional Mortgaged Properties, as the case may be (including, without limitation, all fixtures and improvements relating to any such Mortgaged Property), in favor of the Collateral Agent (or such other trustee as may be named therein) for the benefit of the Secured Creditors, superior to and prior to the rights of all third Persons (except that the security interest created in the Existing Mortgaged Properties and the Additional Mortgaged Properties may be subject to the -57- 66 Permitted Encumbrances related thereto) and subject to no other Liens (other than Liens permitted under Section 9.01). Schedule III contains a true and complete list of each Real Property owned or leased by the Company on the Restatement Effective Date and the type of interest therein held by the Company. The Company has good and marketable title to the Existing Mortgaged Properties and, at the time of grant thereof and at all times thereafter, all Additional Mortgaged Properties, free and clear of all Liens except those described in the first sentence of this subsection (c). (d) No consents, filings or recordings are required as a result of the amendment and restatement of the Existing Credit Agreement pursuant to this Agreement to maintain the perfection and priority of the security interests purported to be created by the Original Security Documents. 7.12 Representations and Warranties in Documents and in Existing Credit Agreement. All representations and warranties set forth in the other Documents were true and correct in all material respects at the time as of which such representations and warranties were made or deemed made and shall be true and correct in all material respects as of the Restatement Effective Date as if such representations and warranties were made on and as of such date. In addition, all representations and warranties set forth in the Existing Credit Agreement were true and correct in all material respects as of the time such representations and warranties were made or deemed made thereunder. 7.13 Properties. Except as set forth in Schedule V, the Company and each of its Subsidiaries have good and marketable title to all properties owned by them including, without limitation, all property reflected in the most recent balance sheet of the Company as referred to in Section 7.05(a)(i) and in the pro forma balance sheet referred to in Section 7.05(a)(ii) and in Section 5.17 (except as sold or otherwise disposed of since the date of such balance sheet in the ordinary course of business or, in the case of any sale or disposition after the Restatement Effective Date, as otherwise permitted under this Agreement), free and clear of all Liens, other than (i) as referred to in such balance sheet or in the notes thereto or in the pro forma balance sheet or (ii) otherwise permitted by Section 9.01. 7.14 Capitalization. On the Restatement Effective Date and after giving effect to the issuance of common stock on such date pursuant to the Equity Financing, the authorized capital stock of the Company shall consist of (i) 500,000 shares of Common Stock, of which 311,034 shares shall be issued and outstanding and (ii) 1,536,042 shares of Class A Common Stock, of which 1,530,515 shares shall be issued and outstanding, 1,402,689 of which shall be held by MSLEF II and 29,831 of which shall be held by CVC. Upon issuance thereof, all such outstanding shares have been -58- 67 or shall be duly and validly issued, are or shall be fully paid and nonassessable and, except as set forth in the Company's Certificate of Incorporation, are or shall be free of preemptive rights. On the Restatement Effective Date, except for the Stockholders Agreement and the Escrow Agreement dated October 30, 1992 among MSLEF II, the Company, Richard C. Thompson, CVC, Horst W. Schroeder, Timothy S. Webster and George K. Baum Group, Inc. (as amended as of March 8, 1995, and further amended as of April 13, 1995), the Company does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock other than options to purchase shares of Common Stock granted to management and employees of the Company pursuant to the Employment Agreements or the Management Agreements or the Stock Option Plans, the aggregate number of such shares subject to such options not to exceed 200,000. 7.15 Compliance with Statutes; etc. Each of the Company and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls), except such noncompliances as would not, in the aggregate, have a Material Adverse Effect. 7.16 Investment Company Act. Neither the Company nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.17 Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.18 Environmental Matters. (a) The Company and each of its Subsidiaries have complied in all material respects with, and on the Restatement Effective Date and on the date of each Credit Event are in compliance in all material respects with, all applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws. There are no material past, pending and to the best knowledge of the Company, threatened Environmental Claims against the Company or any of its Subsidiaries or any Real Property owned or at any time operated by the Company or any of its Subsidiaries. There are no facts, circumstances, conditions or -59- 68 occurrences on any Real Property owned or at any time operated by the Company or any of its Subsidiaries or, to the best knowledge of the Company, on any property adjoining any Real Property owned or operated by the Company and its Subsidiaries that could reasonably be expected (i) to form the basis of an Environmental Claim against the Company or any of its Subsidiaries or any such Real Property, or (ii) to cause such Real Property to be subject to any restrictions on the ownership, occupancy, use or transferability of such Real Property under any Environmental Law. (b) Hazardous Materials have not at any time been generated, used, treated or stored on, or transported to or from, any Real Property owned or at any time operated by the Company or any of its Subsidiaries except in material compliance with Environmental Laws. Hazardous Materials have not at any time been Released on or from any Real Property owned or at any time operated by the Company or any of its Subsidiaries except in material compliance with Environmental Laws. Except as disclosed on Schedule VI, there are not now and never have been any underground storage tanks located on any Real Property owned or at any time operated by the Company or any of its Subsidiaries. 7.19 Labor Relations. Neither the Company nor any of its Subsidiaries is engaged in any unfair labor practice that could have a material adverse effect on the Company or on the Company and its Subsidiaries taken as a whole. There is (i) no significant unfair labor practice complaint pending against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against any of them before the National Labor Relations Board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against any of them, (ii) no significant strike, labor dispute, slowdown or stoppage is pending against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against the Company or any of its Subsidiaries and (iii) to the best knowledge of the Company, no question concerning union representation exists with respect to the employees of the Company or any of its Subsidiaries, except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as could not have a Material Adverse Effect. 7.20 Intellectual Property; Licenses; Franchises; Formulas. Each of the Company and its Subsidiaries owns all the patents, patent applications, trademarks, service marks, trademark and service mark registrations and applications therefor, trade names, copyrights, copyright registrations and applications therefor, trade secrets, proprietary information, computer programs, data bases, licenses, permits, franchises and formulas, or rights with respect to the foregoing (collectively, "Intellectual -60- 69 Property"), and has obtained assignments of all leases and other rights of whatever nature, necessary for the present conduct of its business, without any known conflict with the rights of others. Except as set forth on Schedule VII, neither the Company nor any of its Subsidiaries has knowledge of any existing or threatened claim by any Person contesting the validity, enforceability, use or ownership of the Intellectual Property, or of any existing state of facts that would support a claim that use by the Company or any of its Subsidiaries of any such Intellectual Property has infringed or otherwise violated any proprietary rights of any other Person. 7.21 Indebtedness. Schedule VIII sets forth a true and complete list of all Indebtedness (other than the Loans and the Letters of Credit) of the Company as of the Restatement Effective Date and which is to remain outstanding after giving effect to the Transaction (the "Existing Obligations"), in each case showing the aggregate principal amount thereof (and the aggregate amount of any undrawn commitments with respect thereto) and the name of the respective obligor and any other entity which directly or indirectly guaranteed such debt. No Existing Obligation has been incurred in connection with, or in contemplation of, the Transaction or the other transactions contemplated hereby. 7.22 Restrictions on or Relating to Subsidiaries. There does not exist any encumbrance or restriction on the ability of (a) any Subsidiary of the Company to pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by the Company or any Subsidiary of the Company, or to pay any Indebtedness owed to the Company or a Subsidiary of the Company, (b) any Subsidiary of the Company to make loans or advances to the Company or any of the Company's Subsidiaries or (c) the Company or any of its Subsidiaries to transfer any of its properties or assets to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement or the other Credit Documents or (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Company or a Subsidiary of the Company. 7.23 Enterprise Zone. Pursuant to and in accordance with City of Excelsior Springs Ordinance No. 87-1-4, the Company has been granted enterprise zone tax abatements and exemptions by the City of Excelsior Springs, Missouri and Clay County, Missouri with respect to substantially all of the Real Property of the Company, together with the Missouri Facility and other improvements thereon (including certain equipment which has been classified as real property qualified for said abatements and exemptions), as follows: -61- 70 Such Real Property shall be one hundred percent (100%) exempt from all taxes for a fifteen (15) year period, commencing January 1, 1988. For the next ten (10) years there shall be a fifty percent (50%) abatement of all taxes as to schools, county and any other funds except the general fund, for which there shall be a one hundred percent (100%) abatement of taxes. The one hundred percent (100%) abatement for the general fund of the City of Excelsior Springs shall be for a period of ten (10) years or until such time as One Hundred Eleven Thousand ($111,000.00) Dollars has been abated, whichever time shall occur first. The tax abatements and exemptions claimed as described above are and shall be available to the Company as claimed with respect to any taxable period (or portion thereof) ending on or before the close of business on the Restatement Effective Date (whether for the Company's real property, improvements thereon or equipment classified as real property are therefore qualified for said exemptions and abatements). For taxable periods (or portions thereof) ending after the Restatement Effective Date, such tax abatements and exemptions shall be available to the Company with respect to substantially all of the Company's real property, together with improvements thereon; provided, however, that for taxable periods (or portions thereof) ending after the Restatement Effective Date, the Company makes no representation or warranty that such tax abatements and exemptions shall be available to the Company with respect to equipment (including equipment which has previously been classified as real property entitled to the benefit of such abatements and exemptions). 7.24 Purchase or Other Commitments and Outstanding Bids. No material purchase or other commitment of the Company is in excess of the normal, ordinary, and usual requirements of its business, or was made at any price in excess of the then current market price, or contains terms and conditions more onerous than those usual and customary in the applicable industry. There is no outstanding bid, sales or promotional proposal, contract, or unfilled order of the Company which (i) will, or could if accepted, require the Company to supply goods or services at a cost to the Company in excess of the revenues to be received therefor, or (ii) quotes prices which do not include a markup over reasonably estimated costs consistent with past markups on similar business or market conditions current at that time. 7.25 Subsidiaries. The Company has no Subsidiaries other than Subsidiaries created in accordance with Section 9.16. -62- 71 7.26 Employment Agreements and Management Agreements. On the Restatement Effective Date, the Company has no agreements with members of, or with respect to, the management of the Company or any employment agreements or consulting agreements entered into by the Company or any form of such agreement other than the Management Agreements and the Employment Agreements and other than employment agreements that may be terminable at will by the Company without payment thereunder (other than compensation accrued prior to the date of termination). Section 8. Affirmative Covenants. The Company covenants and agrees that on and after the Restatement Effective Date and until the Total Commitments and all Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings, together with interest, Fees and all other obligations incurred hereunder and thereunder, are paid in full: 8.01 Information Covenants. The Company will furnish, or cause to be furnished, to each Bank: (a) Monthly Reports. Within thirty days after the end of each fiscal month of the Company other than the last such month of any fiscal quarter of the Company, the consolidated balance sheets of the Company and its Subsidiaries as of the end of such month, the related consolidated statements of operations, cash flows and shareholders' equity for such month and for the elapsed portion of the fiscal year ended with the last day of such month, in each case setting forth comparative figures for the corresponding month in the prior fiscal year, all of which shall be certified by the Chief Financial Officer of the Company, subject to normal year-end adjustments. (b) Quarterly Financial Statements. Within forty-five days after the close of each of the first three quarterly accounting periods in each fiscal year of the Company, the consolidated balance sheets of the Company and its Subsidiaries as at the end of such quarterly period, and the related consolidated statements of operations, shareholders' equity and cash flows for such quarterly period and the elapsed portion of the fiscal year ended with the last day of such quarterly period, in each case setting forth comparative figures for the related periods in the prior fiscal year and the budgeted figures for such period as set forth in the respective budget delivered pursuant to Section 8.01(e), all of which shall be certified by the Chief Financial Officer of the Company, subject to normal year-end audit adjustments. (c) Annual Financial Statements. Within ninety days after the close of each fiscal year of the Company, the consolidated balance sheets of the -63- 72 Company and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of operations, shareholders' equity and cash flows for such fiscal year, reported on by Ernst & Young or other independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent and the Required Banks and in each case setting forth comparative figures for the preceding fiscal year, together with an unqualified opinion of such accounting firm and a letter stating that in the course of its regular audit of the financial statements of the Company and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or Event of Default arising under Sections 4.02(A)(k), 9.02, 9.04, 9.05, 9.06 or 9.08 through 9.11, inclusive, insofar as such Sections relate to accounting matters or require computations to be made which are ordinarily made by accountants which has occurred and is continuing or, if in the opinion of such accounting firm such a Default or Event of Default has occurred and is continuing, a statement as to the nature and period of existence thereof. The Company shall provide a comparison between the consolidated balance sheets of the Company and its Subsidiaries and the related consolidated statements of operations, shareholders' equity and cash flows referred to above and the budgeted figures for the relevant period as set forth in the respective budget delivered pursuant to Section 8.01(e). (d) Management Letters. Promptly after receipt thereof, a copy of any "management letter" received by the Company or any of its Subsidiaries from its certified public accountants. (e) Budgets. As soon as available and in any event within ninety days following the first day of each fiscal year of the Company, a budget in form satisfactory to the Administrative Agent and the Required Banks (including budgeted statements of operations, cash flows and shareholders' equity and balance sheets) prepared by the Company for each fiscal quarter of such fiscal year, in each case prepared in reasonable detail, with appropriate presentation and discussion of the principal assumptions upon which such budgets are based, which shall be accompanied by the statement of the Chief Financial Officer of the Company to the effect that, to the best of his knowledge, such budget is a reasonable estimate for the period covered thereby. (f) Officer's Certificates. At the time of the delivery of the financial statements provided for in Section 8.01(a), (b) and (c), a certificate of the Chief Financial Officer of the Company to the effect that no Default or Event of Default has occurred and is continuing or, if any Default or Event of Default has -64- 73 occurred and is continuing, specifying the nature and extent thereof, which certificate shall also set forth if delivered with the financial statements required by Section 8.01(b) or (c), (i) the calculations required to establish whether the Company was in compliance with the provisions of Sections 3.03, 4.02, 9.02, 9.04, 9.05, 9.06 and 9.08 through 9.11, inclusive, and (ii) the amount of Excess Cash Flow for the fiscal period covered by such financial statements. (g) Notice of Default or Litigation, etc. Promptly, and in any event within three Business Days after an officer of the Company or any of its Subsidiaries obtains knowledge thereof, notice of (i) the occurrence of any event which constitutes a Default or Event of Default, (ii) any litigation or governmental investigation or proceeding pending (x) against the Company or any of the Subsidiaries which could materially and adversely affect the business, property, assets, nature of assets, liabilities, condition (financial or otherwise) or prospects of the Company or of the Company and its Subsidiaries taken as a whole, (y) with respect to any material Indebtedness or preferred stock of the Company or any of its Subsidiaries or (z) with respect to any Document, (iii) any adverse judgment rendered against the Company or any of its Subsidiaries, which imposes punitive damages or otherwise providing for a recovery which is, to the extent not covered by insurance, in excess of $100,000, and (iv) any other event which could have a Material Adverse Effect. (h) Other Reports and Filings. Promptly, copies of all financial information, proxy materials and other information and reports, if any, which the Company or any of its Subsidiaries shall file with the Securities and Exchange Commission or any successor thereto (the "SEC") or deliver to holders of its Indebtedness pursuant to the terms of the documentation governing such Indebtedness or (or any trustee, agent or other representative therefor). (i) Environmental Matters. Promptly upon, and in any event within three Business Days after an officer of the Company or any of its Subsidiaries obtains knowledge thereof, notice of one or more of the following environmental matters: (i) any pending or threatened material Environmental Claim against the Company or any of its Subsidiaries or any Real Property owned or at any time operated by the Company or any of its Subsidiaries; (ii) any condition or occurrence on or arising from any Real Property owned or at any time operated by the Company or any of its Subsidiaries that (a) results in material noncompliance by the Company or any of its Subsidiaries with any applicable Environmental Law, or (b) could reasonably be expected to form the basis of a material Environmental Claim against the Company or any of its Subsidiaries or any such Real Property; (iii) any condition or occurrence on any Real -65- 74 Property owned or at any time operated by the Company or any of its Subsidiaries that could reasonably be expected to cause such Real Property to be subject to any material restrictions on the ownership, occupancy, use or transferability of such Real Property under any Environmental Law; and (iv) the taking of any material removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Property owned or at any time operated by the Company or any of its Subsidiaries as required by any Environmental Law or any governmental or other administrative agency. All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and the Company's or such Subsidiary's response thereto. In addition, the Company will provide the Banks with copies of all written communications with any government or governmental agency relating to Environmental Laws, all communications with any Person relating to Environmental Claims, and such detailed reports of any Environmental Claim as may reasonably be requested by the Banks. (j) Annual Meetings with Banks. Within 120 days after the close of each fiscal year of the Company, the Company shall hold a meeting with respect to which all of the Banks shall have received notice at least fourteen (14) days in advance, and to which all the Banks shall be invited to attend, at which meeting shall be reviewed the financial results of the previous fiscal year and the financial condition of the Company and its Subsidiaries and the budgets presented for the current fiscal year of the Company and its Subsidiaries. (k) Borrowing Base Certificate. (i) On the Restatement Effective Date and (ii) thereafter, not later than 12:00 Noon (New York time) on the tenth Business Day after each fiscal month-end, a borrowing base certificate substantially in the form of Exhibit N (each, a "Borrowing Base Certificate"), with respect to the Eligible Receivables and the Eligible Inventory of the Company and its Subsidiaries as of (x) in the case of clause (i), March 28, 1997 and (y) in the case of clause (ii), the last day of the immediately preceding fiscal month, and in all such cases, certified by the Chief Financial Officer of the Company. (l) Sysco Contract Notices. Promptly, and in any event within two Business Days after which the Company receives a notice from Sysco pursuant to Section 5.2 of the Sysco Contract or any other material notices delivered to the Company pursuant to the Sysco Contract, copies of all such notices. -66- 75 (m) CPC Contract Notices. Promptly, and in any event within two Business Days after which the Company delivers or receives any material notice pursuant to the CPC Contract, copies of all such notices. (n) Other Information. From time to time, such other information or documents (financial or otherwise) as the Administrative Agent or the Required Banks may reasonably request. 8.02 Books, Records and Inspections. The Company will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries in conformity with United States generally accepted accounting principles and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. The Company will, and will cause each of its Subsidiaries to, permit officers and designated representatives of the Administrative Agent or any Bank to visit and inspect, under guidance of officers of the Company or such Subsidiary, any of the properties of the Company or such Subsidiary, and to examine the books of account of the Company or such Subsidiary and discuss the affairs, finances and accounts of the Company or such Subsidiary with, and be advised as to the same by, its and their officers, all at such reasonable times and intervals, upon reasonable notice and to such reasonable extent as the Administrative Agent or such Bank may request. 8.03 Maintenance of Property, Insurance. Schedule IX sets forth a true and complete listing of all insurance maintained by the Company as of the Restatement Effective Date. The Company will, and will cause each of its Subsidiaries to, (i) keep all property useful and necessary in its business in good working order and condition, (ii) maintain with financially sound and reputable insurance companies insurance, including, but not limited to, business interruption insurance, on all its assets and properties in at least such amounts and against at least such risks as is consistent and in accordance with industry practice for companies similarly situated, and (iii) furnish to each Bank, on the Restatement Effective Date and on each anniversary thereof, full information as to the insurance carried. At any time that insurance at levels described in Schedule IX is not being maintained by the Company or any Subsidiary of the Company, the Company will notify the Banks in writing within two Business Days thereof and, if thereafter notified by the Administrative Agent or the Required Banks to do so, the Company or any such Subsidiary, as the case may be, shall obtain insurance at such levels at least equal to those set forth on Schedule IX. It is understood and agreed that the Company may provide self-insurance for workers' compensation claims in an amount not to exceed $2,000,000 over any two year period. The provisions of this Section 8.03 shall be deemed to be supplemental to, but not -67- 76 duplicative of, the provisions of any of the Security Documents that require the maintenance of insurance. 8.04 Corporate Franchises. The Company will, and will cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence, and all material rights, franchises, licenses and patents; provided, however, that nothing in this Section 8.04 shall prevent the withdrawal by the Company or any of its Subsidiaries of its qualification as a foreign corporation in any jurisdiction where such withdrawal could not have a Material Adverse Effect. 8.05 Compliance with Statutes, etc. The Company will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such noncompliances as could not, individually or in the aggregate, have a Material Adverse Effect. 8.06 Compliance with Environmental Laws. (a) The Company will, and will cause each of its Subsidiaries to, comply, in all material respects with all Environmental Laws applicable to ownership or use of the Real Property owned or operated by the Company or any of its Subsidiaries, will promptly pay or cause to be paid all costs and expenses incurred in such compliance and will keep or cause to be kept all such Real Properties free and clear of any Liens imposed pursuant to such Environmental Laws. Neither the Company nor any of its Subsidiaries will generate, use, treat, store, release or dispose of, or permit the generation, use, treatment, storage, release or disposal of, Hazardous Materials on any Real Property owned, leased or operated by the Company or any of its Subsidiaries, or transport or permit the transportation of Hazardous Materials to or from any such Real Property except for limited quantities of Hazardous Materials generated, used, treated, stored, released or disposed of at such Real Properties in material compliance with all applicable Environmental Laws and required in connection with the normal operation, use and maintenance of such Real Property. The Company and its Subsidiaries shall not dispose of any Hazardous Materials off site except in material compliance with all applicable Environmental Law. (b) At the written request of the Administrative Agent or the Required Banks, which request shall specify in reasonable detail the basis therefor, at any time and from time to time, the Company will provide, at the Company's sole cost and expense, an environmental site assessment report concerning any Real Property, at the time of such request owned, operated or leased by the Company or any of its -68- 77 Subsidiaries, prepared by an environmental consulting firm approved by the Administrative Agent and the Required Banks, indicating the presence, Release or absence of Hazardous Materials on or from any such Real Property and the potential cost of any removal, remedial or corrective action in connection with any such Hazardous Materials on such Real Property, provided, however, no such request may be made unless (i) the Administrative Agent or the Required Banks reasonably believes that the facts or circumstances evidence or suggest that the Company or any of its Subsidiaries is in material non-compliance with any Environmental Law, (ii) a Default or Event of Default is in existence and continuing or (iii) upon the acquisition of any Real Property by the Company or any of its Subsidiaries subsequent to the Original Effective Date, provided that if any such newly acquired Real Property is not contiguous with any Mortgaged Property, then such request shall be limited to such newly acquired Real Property. If the Company fails to provide the same sixty (60) days after such request was made, the Administrative Agent may order the same, and the Company shall grant and hereby grants to the Administrative Agent and the Banks and their agents access to such Real Property and specifically grants the Administrative Agent and the Banks an irrevocable and non-exclusive license, subject to the rights of tenants, to undertake such an assessment all at the expense of the Company. 8.07 ERISA. As soon as possible and, in any event, within ten Business Days after the Company or any of its Subsidiaries or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, the Company will deliver to each of the Banks a certificate of the Chief Financial Officer of the Company setting forth details as to such occurrence and the action, if any, which the Company, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Company, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred; that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following thirty days; that an accumulated funding deficiency has been incurred or an application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan; that a Plan has been or may be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability giving rise to a Lien under ERISA or the Code; that proceedings may be or have been instituted to terminate a Plan; that a proceeding has been instituted pursuant to Section 515 of ERISA to -69- 78 collect a delinquent contribution to a Plan; that the Company, any of its Subsidiaries or any ERISA Affiliate will or may incur any liability (including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA; or that the Company or any Subsidiary may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2) of ERISA). The Company will deliver to each of the Banks a complete copy of the annual report (Form 5500) of each Plan required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Banks pursuant to the first sentence hereof, copies of annual reports and any notices received by the Company or any of its Subsidiaries or any ERISA Affiliate with respect to any Plan, shall be delivered to the Banks no later than ten (10) Business Days after the later of the date such report or notice has been filed with the Internal Revenue Service or received by the Company or the Subsidiary or the ERISA Affiliate. Except to the extent set forth below, this Section 8.07 shall not apply with respect to any Person that is an "ERISA Affiliate" solely by reason of MSLEF II's ownership interest in such Person nor to any Plan maintained or contributed to by any such Person and the Company shall have no obligation to provide the information otherwise required by this Section 8.07 with respect to any such Person or Plan unless the Company shall have actual knowledge of such information; provided, however, it is expressly understood that the Company shall have no obligation to inquire with respect to any such Person or Plan and that MSLEF II's knowledge with respect to any such person or Plan shall not be deemed to be knowledge of the Company nor shall cause the Company to have reason to know of such information. 8.08 End of Fiscal Years; Fiscal Quarters. The Company will cause (i) each of its, and each of its Subsidiaries', fiscal years and fourth fiscal quarter to end within five Business Days prior to or after the last Business Day of September 30, and (ii) each of its, and each of its Subsidiaries', first three fiscal quarters to end within five Business Days prior to or after the last Business Day of each December, March and June. 8.09 Performance of Obligations. The Company will, and will cause each of its Subsidiaries to, perform all of its obligations under the terms of each mortgage, indenture, security agreement and other debt instrument by which it is bound and each other agreement or contract to which it is a party, except such non-performances as could not in the aggregate have a Material Adverse Effect. -70- 79 8.10 Payment of Taxes. The Company will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attached thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any properties of the Company or any of its Subsidiaries; provided that neither the Company nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings or the taking of other proper actions if it has maintained adequate reserves with respect thereto in accordance with generally accepted accounting principles. 8.11 Interest Rate Protection. On or prior to the three month anniversary of the Restatement Effective Date, the Company shall have established and shall thereafter maintain arrangements which have the effect of establishing a fixed or maximum interest rate acceptable to the Administrative Agent and the Required Banks for at least $65,000,000 aggregate notional principal amount of Indebtedness for a period ending no earlier than 24 months. 8.12 Use of Proceeds. All proceeds of the Loans shall be used as provided in Section 7.08. 8.13 Additional Security; Further Assurances. (a) The Company shall grant to the Collateral Agent, for the benefit of the Secured Creditors, a security interest in any Real Property of the Company or any of its Subsidiaries that is not covered by the Existing Mortgages, to the extent acquired after the Restatement Effective Date, as may be requested from time to time by the Administrative Agent or the Required Banks (each such Real Property, an "Additional Mortgaged Property" and, collectively, the "Additional Mortgaged Properties"), and shall take all actions requested by the Administrative Agent or the Required Banks (including, without limitation, the obtaining of Mortgage Policies, title surveys, environmental reports and real estate appraisals satisfying the requirements of all applicable laws) in connection with the granting of such security interest. (b) The Company agrees to cause each Subsidiary established or created in accordance with Section 9.16 to execute and deliver a guaranty of all Obligations and all obligations under Interest Rate Protection or other Hedging Agreements in form and substance satisfactory to the Administrative Agent and the Required Banks. -71- 80 (c) The Company agrees to pledge all of the capital stock of each new Subsidiary established or created to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement. (d) The Company will cause each Subsidiary established or created in accordance with Section 9.16 to grant to the Collateral Agent a first priority Lien on all property (tangible and intangible) of such Subsidiary upon terms similar to those set forth in the Security Documents as appropriate, and satisfactory in form and substance to the Administrative Agent and Required Banks. The Company shall cause each Subsidiary, at its own expense, to execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record in any appropriate governmental office, any document or instrument reasonably deemed by the Collateral Agent to be necessary or desirable for the creation and perfection of the foregoing Liens. The Company will cause each of its Subsidiaries to take all actions requested by the Administrative Agent (including, without limitation, the filing of UCC-1's) in connection with the granting of such security interests. (e) The security interests required to be granted pursuant to this Section 8.13 shall be granted pursuant to such security documentation (which shall be substantially similar to the Security Documents already executed and delivered by the Company) reasonably satisfactory in form and substance to the Administrative Agent and the Required Banks and shall constitute valid and enforceable perfected security interests prior to the rights of all third Persons and subject to no other Liens except such Liens as are permitted by Section 9.01. The Additional Security Documents and other instruments related thereto shall be duly recorded or filed in such manner and in such places and at such times as are required by law to establish, perfect, preserve and protect the Liens, in favor of the Collateral Agent for the benefit of the respective Secured Creditors, required to be granted pursuant to the Additional Security Documents and all taxes, fees and other charges payable in connection therewith shall be paid in full by the Company. The Company shall, and shall cause each of its Subsidiaries to, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral covered by any of the Additional Security Documents as the Collateral Agent may reasonably require. At the time of the execution and delivery of the Additional Security Documents, the Company shall cause to be delivered to the Collateral Agent such opinions of counsel, Mortgage Policies, title surveys, real estate appraisals, environmental reports and other related documents as may be reasonably requested by the Administrative Agent or the Required Banks to assure themselves that this Section 8.13 has been complied with. -72- 81 (f) The Company agrees that each action required by Section 8.13(a) with respect to any Additional Mortgage described therein and the due recordation or filing of such Additional Mortgage shall be completed as soon as possible, but in no event later than thirty days after such action is requested to be taken by the Administrative Agent or the Required Banks. The Company further agrees that each action required by Section 8.13(b), (c) or (d) with respect to the Additional Collateral shall be completed contemporaneously with the creation of such new Subsidiary. 8.14 Register. The Company hereby designates the Administrative Agent to serve as the Company's agent, solely for purposes of this Section 8.14, to maintain a register (the "Register") on which it will record the Commitments from time to time of each of the Banks, the Loans made by each of the Banks and each repayment in respect of the principal amount of the Loans of each Bank. Failure to make any such recordation, or any error in such recordation shall not affect the Company's obligations in respect of such Loans. With respect to any Bank, the transfer of the Commitments of such Bank and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered assignment and assumption agreement pursuant to Section 13.04(b). Coincident with the delivery of such an assignment and assumption agreement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan, or as soon thereafter as practicable, the assigning or transferor Bank shall surrender the Note evidencing such Loan, and thereupon one or more new Notes in the same aggregate principal amount shall be issued to the assigning or transferor Bank and/or the new Bank. The Company agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 8.14. 8.15 Capital Expenditure Confirmation. At the request of the Administrative Agent or the Required Banks, the Company will provide to the Administrative Agent and the Banks evidence, in form and substance reasonably satisfactory to the Administrative Agent and the Required Banks, of the Permitted Capital Expenditures actually made by the Company and that such Permitted Capital Expenditures were made as contemplated by, and in accordance with, Section 9.08(b). If the Company fails to provide such evidence within ten Business Days after such -73- 82 request was made, the Company shall pay to the Administrative Agent cash or Cash Equivalents in an amount equal to the aggregate of all such Permitted Capital Expenditures for which the Company has failed within such ten Business Day period to provide satisfactory evidence to the Administrative Agent and the Required Banks for deposit into a cash collateral account to be established by the Administrative Agent, to be held by the Administrative Agent and released in whole or in part upon presentation of satisfactory evidence to the Administrative Agent and the Required Banks of Permitted Capital Expenditures actually made as contemplated by, and in accordance with, Section 9.08(b) with respect to which no Permitted Capital Expenditure Financing was previously incurred or issued and used. Section 9. Negative Covenants. The Company hereby covenants that on and after the Restatement Effective Date and until the Total Commitments and all Letters of Credit have terminated and the Loan, Notes and Unpaid Drawings, together with interest, Fees and all other Obligations incurred hereunder and thereunder, are paid in full: 9.01 Liens. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of the Company or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to the Company or any of its Subsidiaries), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 9.01 shall not prevent the creation, incurrence, assumption or existence of the following (liens described below are herein referred to as "Permitted Liens"): (i) inchoate Liens for taxes not yet due or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with United States generally accepted accounting principles; (ii) Liens in respect of property or assets of the Company imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the Company's property or assets or materially impair -74- 83 the use thereof in the operation of the business of the Company or (y) which Liens or the obligations secured thereby are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) Liens of the Company in existence on the Restatement Effective Date which are listed, and the property subject thereto described, on Schedule X, without giving effect to any extensions or renewals thereof except such extensions or renewals as are expressly set forth on Schedule X as permitted, and only to the respective date, if any, set forth on such Schedule X for the removal and termination of any such Liens; (iv) Permitted Encumbrances; (v) Liens created pursuant to the Security Documents; (vi) Liens placed upon equipment or machinery of the Company used in the ordinary course of the business of the Company at the time of acquisition thereof by the Company to secure Indebtedness incurred to pay all or a portion of the purchase price thereof, provided that (x) the aggregate principal amount of all Indebtedness secured by Liens permitted by this clause (vi) is permitted to be incurred pursuant to Section 9.05(v) and (y) in all events, the Lien encumbering the equipment or machinery so acquired does not encumber any other asset of the Company or any of its Subsidiaries; (vii) Liens securing Indebtedness of the Company evidenced by Capitalized Lease Obligations to the extent permitted by Section 9.05(v), provided that such Liens only serve to secure the payment of Indebtedness arising under such Capitalized Lease Obligation and the Lien encumbering the asset being leased pursuant to the Capitalized Lease Obligation does not encumber any other asset of the Company or any of its Subsidiaries; (viii) Liens placed upon equipment or machinery of the Company purchased as a Permitted Capital Expenditure with proceeds of Permitted Capital Expenditure Indebtedness, provided that (x) the aggregate principal amount of all Indebtedness secured by Liens permitted by this clause (viii) is permitted to be incurred pursuant to Section 9.05(vi) and (y) in all events, the Lien encumbering the equipment or machinery so purchased does not encumber any other asset of the Company or any of its Subsidiaries; -75- 84 (ix) easements, rights-of-way, restrictions, encroachments and other similar charges or encumbrances arising in the ordinary course of business and not materially interfering with the conduct of the business of the Company or any of its Subsidiaries; (x) Liens arising from precautionary UCC financing statement filings regarding operating leases; (xi) Liens placed on unutilized Real Property (and any crops grown thereon) of the Company subject to the Existing Mortgages which do not in the aggregate materially detract from the value of the Company's property or assets or materially impair the use thereof in the operation of the business of the Company; (xii) the Permitted Filot Transaction; and (xiii) Liens not otherwise permitted by the foregoing clauses (i) through (xii), inclusive, to the extent attaching to properties and assets with an aggregate fair value not in excess of, and securing liabilities not in excess of, $100,000 in the aggregate at any one time outstanding. 9.02 Consolidation; Merger; Purchase or Sale of Assets; etc. The Company will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of all or any part of its property or assets, or enter into any partnerships, joint ventures or sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials and equipment in the ordinary course of business) of any Person (or agree to do any of the foregoing at any future time), except that: (i) Capital Expenditures by the Company shall be permitted to the extent not in violation of Section 9.08; (ii) the Company may, in the ordinary course of business, sell, lease or otherwise dispose of any assets which, in the reasonable judgment of the Company, have become uneconomic, obsolete or worn out so long as the aggregate amount of Net Sale Proceeds from all such sales in any one fiscal year does not exceed $750,000; -76- 85 (iii) the Company may lease (as lessee) real or personal property to the extent permitted by Section 9.04 (so long as such lease does not create Capitalized Lease Obligations) and the Company may lease (as lessor) Real Property in accordance with Section 9.01(xi); (iv) the Company may make sales or other dispositions of inventory and Cash Equivalents in the ordinary course of business and the Company may otherwise dispose of inventory by providing samples to potential customers, vendors and other parties in amounts and at times and otherwise in the ordinary course of business and consistent with past practice; (v) investments may be made to the extent permitted by Section 9.06; (vi) sales of receivables as described in, and in accordance with the provisions of, Section 4.02(A)(j)(iii) shall be permitted; (vii) the Company may transfer assets to newly created or established Subsidiaries in accordance with Section 9.16; and (viii) the Permitted Filot Transaction shall be permitted. In the event the Required Banks waive the provisions of this Section 9.02 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 9.02, such Collateral shall be sold free and clear of the Liens created by the Security Documents, and the Administrative Agent and Collateral Agent shall be authorized to take any actions deemed appropriate in order to effect the foregoing. 9.03 Dividends. The Company shall not, and shall not permit any of its Subsidiaries to, authorize, declare or pay any Dividends with respect to the Company or any of its Subsidiaries, except that (i) any Subsidiary of the Company may pay Dividends to the Company or any Wholly-Owned Subsidiary of the Company, and (ii) so long as there shall exist no Default or Event of Default (both before and after giving effect to the payments thereof), the Company may make payments with respect to stock option plans and stock appreciation rights programs of the Company and repurchase options and Common Stock upon the termination of employment, death, permanent disability or retirement of its employees, management or consultants, provided, that the aggregate amount expended by the Company pursuant to this clause (ii) during the period commencing on the Original Effective Date and ending on the Final Maturity Date shall not exceed $200,000. -77- 86 9.04 Leases. The Company will not permit the aggregate payments (including, without limitation, any property taxes paid as additional rent or lease payments) made by the Company and its Subsidiaries on a consolidated basis under any agreement to rent or lease any real or personal property (or any extension or renewal thereof) (excluding Capitalized Lease Obligations) to exceed $500,000 in any fiscal year of the Company. Notwithstanding anything to the contrary contained in the foregoing, the payments to be made by the Company pursuant to the Lease Agreement shall not be taken into account when determining compliance with this Section 9.04. 9.05 Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness incurred pursuant to this Agreement and the other Credit Documents; (ii) Indebtedness of the Company existing on the Restatement Effective Date shall be permitted to the extent the same is listed on Schedule VIII, provided that, no refinancings or renewals of the Indebtedness except as expressly set forth on Schedule VIII shall be permitted and, in any event, refinancings and renewals shall not be in excess of the respective amounts set forth on Schedule VIII and such refinancing or renewal shall be at customary and market terms at the time of such refinancing; (iii) accrued expenses and current trade accounts payable by the Company and incurred in the ordinary course of business of the Company; (iv) Indebtedness of the Company constituting Contingent Obligations arising pursuant to a guaranty of the obligations of any employee of the Company, to the extent permitted by Section 9.06(iii); (v) Indebtedness of the Company evidenced by Capitalized Lease Obligations to the extent permitted pursuant to Section 9.08 and Indebtedness secured by Liens permitted under Section 9.01(vi), provided that (1) no such Indebtedness is incurred prior to the Company's 1998 fiscal year and (2) for any fiscal year of the Company, the sum of (a) the aggregate principal amount of such Capitalized Lease Obligations permitted by this Section 9.05(v) incurred during such fiscal year plus (b) the aggregate principal amount of all Indebtedness secured by Liens permitted under Section 9.01(vi) incurred during such fiscal year shall not exceed $1,500,000. -78- 87 (vi) Permitted Capital Expenditure Indebtedness incurred on or prior to March 31, 1998, provided that in no event shall the aggregate principal amount of Permitted Capital Expenditure Indebtedness incurred by the Company on or after the Restatement Effective Date exceed $10,000,000; (vii) Indebtedness of the Company under Interest Rate Protection or Other Hedging Agreements arising in the ordinary course of business or to the extent required by Section 8.11; (viii) Indebtedness of the Company arising in connection with entering into futures or forward purchase contracts in accordance with Section 9.06(v); and (ix) Indebtedness of Subsidiaries of the Company to the Company to the extent permitted by Section 9.06(vi). 9.06 Advances, Investments and Loans. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract or hold any cash or Cash Equivalents, except that the following shall be permitted: (i) the Company may acquire and hold accounts receivables owing to it, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary terms; (ii) the Company may acquire and hold cash and Cash Equivalents, provided that during any time that Revolving Loans are outstanding, the aggregate amount of cash and Cash Equivalents permitted to be held by the Company shall not exceed $5,000,000 for any period of five consecutive Business Days, and if at any time the Company holds cash or Cash Equivalents which exceed $5,000,000 in the aggregate for any period of five consecutive Business Days, such excess shall be applied on the first Business Day following the fifth such consecutive Business Day to repay Revolving Loans in accordance with Section 4.02(A)(c); (iii) the Company may (x) make or maintain advances to employees of the Company in the ordinary course of business, and (y) guaranty, in the -79- 88 ordinary course of business, loans and advances to employees of the Company, provided that the aggregate principal amount of all such advances and guaranteed obligations pursuant to this clause 9.06(iii) shall not exceed $500,000 in the aggregate at any one time outstanding; (iv) the Company may enter into Interest Rate Protection or Other Hedging Agreements; (v) the Company may enter into forward purchase contracts with suppliers of durum wheat to meet its normal raw material supply requirements in the ordinary course of business or futures contracts entered into for delivery of durum wheat in the ordinary course of business; (vi) the Company may make loans or advances to, or investments in, Subsidiaries created or established in accordance with Section 9.16 so long as the fair market value of the assets loaned, advanced to, or invested in, all such Subsidiaries, together with the fair market value of all assets transferred to, all such Subsidiaries does not exceed $100,000 at any time and provided further that all such loans and advances shall be evidenced by a promissory note pledged to the Collateral Agent for the benefit of the Banks pursuant to the Pledge Agreement and all such investments shall be evidenced by capital stock of the Subsidiary and shall be pledged to the Collateral Agent for the benefit of the Banks pursuant to the Pledge Agreement; and (vii) the Company may acquire and hold the Equity Financing Notes. 9.07 Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of the Company other than on terms and conditions substantially as favorable to the Company or such Subsidiary as would be obtainable by the Company or such Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate; provided that the following shall be permitted: (i) the payment of customary fees to members of the Board of Directors of the Company, (ii) transactions expressly permitted by Sections 9.03, 9.06(iii) and 9.06(vi), and (iii) the payment of fees to Morgan Stanley Group Inc. or its Affiliates from time to time for financial, consulting and underwriting services provided to the Company so long as such fees do not exceed the then usual and customary fees of Morgan Stanley Group Inc. or its Affiliates for similar services. -80- 89 9.08 Capital Expenditures. (a) The Company will not, and will not permit any of its Subsidiaries to, make any Capital Expenditures, except that the Company may make (x) Capital Expenditures that are Permitted Capital Expenditures in accordance with Section 9.08(b) and (y) other Capital Expenditures in aggregate amounts during the fiscal years set forth below, not in excess of the respective amounts set forth opposite such fiscal year below: Fiscal Year Amount Per Year ----------- --------------- 1997 $10,000,000 1998 $10,000,000 1999 and thereafter $5,000,000 In addition, if Consolidated EBITDA for any period of four consecutive fiscal quarters of the Company beginning on or after the first day of the Company's 1998 fiscal year and ended on or prior to the last day of the Company's 1999 fiscal year exceeds $36,000,000, the aggregate amount of Capital Expenditures (other than Permitted Capital Expenditures) permitted during the fiscal year of the Company ending on or after the last day of such four fiscal quarter period shall be increased by an amount equal to $6,500,000; provided, however, that the maximum aggregate amount of additional Capital Expenditures permitted pursuant to this sentence shall be $6,500,000. In addition, the amount of Capital Expenditures permitted during any fiscal year set forth above may be increased by an amount equal to (x) 25% of the amount of Excess Cash Flow generated during the period commencing on the first day of the first fiscal quarter of the Company ended after the Restatement Effective Date (or, if Consolidated EBITDA for any period of four consecutive fiscal quarters of the Company beginning on or after the Restatement Effective Date exceeds $36,000,000, 50% of the amount of Excess Cash Flow generated during the period commencing on the first day of the first fiscal quarter of such period in which Consolidated EBITDA exceeded 36,000,000) and ending on the last day of the fiscal quarter of the Company ended immediately preceding the date on which the amount of permitted Capital Expenditures is being determined less (y) the aggregate amount of Capital Expenditures (other than Permitted Capital Expenditures) previously made in excess of the otherwise applicable permitted amount as set forth above as a result of the application of this sentence. To the extent that the amount of Capital Expenditures (other than Permitted Capital Expenditures) made by the Company and its Subsidiaries during any fiscal year of the Company is less than the amount permitted to be spent in accordance with the preceding sentences of this Section 9.08(a), such unutilized amount may be carried forward and utilized to make Capital Expenditures (other than Permitted Capital Expenditures) in excess of the amount permitted above in any subsequent fiscal year; provided that the total amount carried forward to any fiscal year pursuant to this sentence may not exceed -81- 90 $20,000,000. Notwithstanding anything to the contrary contained in this Section 9.08(a), the aggregate amount of Capital Expenditures (other than Permitted Capital Expenditures) made during any fiscal year shall not exceed $25,000,000. (b) The Company will not, and will not permit any of its Subsidiaries to, make any Permitted Capital Expenditures, except that the Company may make Permitted Capital Expenditures so long as the aggregate amount of such Permitted Capital Expenditures shall not exceed $60,000,000. 9.09 Current Ratio. The Company will not permit the ratio of Consolidated Current Assets to Consolidated Current Liabilities at the end of any fiscal quarter ending after the Restatement Effective Date to be less than 1.75 to 1.0. 9.10 Cash Flow Coverage Ratio. The Company will not permit the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest Expense, for any Test Period ended on the last day of a fiscal quarter set forth below to be less than the ratio set forth opposite such fiscal quarter: Fiscal Quarter Ended In Ratio - -------------- ----- June 1997 1.70:1.00 September 1997 1.70:1.00 December 1997 1.70:1.00 March 1998 1.70:1.00 June 1998 1.85:1.00 September 1998 2.00:1.00 December 1998 2.50:1.00 March 1999 2.50:1.00 June 1999 2.50:1.00 September 1999 2.50:1.00 December 1999 2.75:1.00 March 2000 2.75:1.00 June 2000 2.75:1.00 September 2000 2.75:1.00 December 2000 3.00:1.00 and the last day of -82- 91 each fiscal quarter thereafter 9.11 Minimum Consolidated Net Worth. The Company will not permit its Consolidated Net Worth at any time during any fiscal quarter to be less than an amount equal to the greater of (i) $35,500,000 and (ii) 85% of the highest Consolidated Net Worth theretofore having existed during the period from and including the Restatement Effective Date to and including the last day of the fiscal month for which financial statements are required to have been delivered in accordance with Section 8.01; provided, that in no event shall the Company be required to have Consolidated Net Worth in excess of $75,000,000; provided further that for the purposes of this Section, Consolidated Net Worth shall be increased by the amount of the one-time non-cash write-off (not to exceed $2,000,000) of (x) capitalized start-up costs associated with the expansion of the South Carolina Facility and/or the Missouri Facility and (y) fixed marketing amortization associated with capitalized slotting and marketing costs. 9.12 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. The Company will not, and will not permit any of its Subsidiaries to, (i) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption (including pursuant to any change of control provision) or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) any Existing Obligations or, after the incurrence thereof, any Permitted Capital Expenditure Indebtedness, (ii) amend or modify, or permit the amendment or modification of, any provision of the Existing Obligations (except as provided in Section 9.05(ii)), the Equity Financing Notes, the Permitted Capital Expenditure Indebtedness, any Permitted Filot Transaction Document or any agreement (including, without limitation, any purchase agreement, indenture, loan agreement or security agreement) relating to any of the foregoing, (iii) amend, modify or change (x) its Certificate of Incorporation (including, without limitation, by the filing or modification of any certificate of designation) or By-Laws other than (A) any amendment increasing the authorized number of shares of common equity which may be issued by such Person, to the extent the issuance of such equity is permitted by this Agreement and (B) any other amendment, modification, or change which does not authorize redeemable common stock or any preferred stock and which would not adversely affect any Bank, or (y) any agreement (other than any agreement with respect to which amendments, modifications or changes are covered by clause (vii) below) entered into by it with respect to its capital stock, or enter into any new agreement with respect to its capital stock except agreements which are not adverse to any Bank, do not violate or breach, -83- 92 and are not inconsistent with, any of the terms of this Agreement and which do not, and will not, involve the payment by the Company of any amounts and do not result in the Company incurring then or at any time in the future any liability or monetary obligation, (iv) amend, modify or change, terminate or enter into any new Shareholders' Agreement except amendments, modifications or changes which are not adverse to any Bank, do not violate or breach, and are not inconsistent with, any of the terms of this Agreement and which do not, and will not, involve the payment by the Company of any amounts and do not result in the Company incurring then or at any time in the future any liability or monetary obligation, (v) enter into any Tax Sharing Agreement, (vi) amend, modify, change or terminate any material provision of the CPC Contract or (vii) enter into any new Employee Benefit Plan, Employment Agreement or Management Agreement or amend, modify or change any Employee Benefit Plan, Employment Agreement or Management Agreement, except in the case of this clause (vii) if the aggregate costs to the Company and its Subsidiaries as a result of such amendments, modifications, changes and/or new agreements are not reasonably likely to have a Material Adverse Effect. 9.13 Limitation on Certain Restrictions on Subsidiaries. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by the Company or any Subsidiary of the Company, or pay any Indebtedness owed to the Company or a Subsidiary of the Company, (b) make loans or advances to the Company or any of the Company's Subsidiaries or (c) transfer any of its properties or assets to the Company (other than in the case of this clause (c) restrictions existing as a result of Permitted Liens on such properties or assets), except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Credit Documents and (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Company or a Subsidiary of the Company. 9.14 Limitation on Issuance of Capital Stock. (a) The Company shall not (except pursuant to Section 9.16) permit any of its Subsidiaries to issue any capital stock (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, capital stock, except (i) for transfers and replacements of then outstanding shares of capital stock and (ii) for stock splits, stock dividends and similar issuances which do not decrease the percentage ownership of the Company in any class of the capital stock of such Subsidiary. -84- 93 (b) The Company shall not issue any capital stock, except for issuances of Common Stock where after giving effect to such issuance, no Event of Default will exist under Section 10.09. 9.15 Business. The Company will not engage (directly or indirectly) in any business other than the business in which it is engaged on the Restatement Effective Date and any other reasonably related businesses. 9.16 Limitation on Creation of Subsidiaries. The Company shall not, and shall not permit any of its Subsidiaries to, establish, create or acquire any Subsidiary, except the Company may establish or create Subsidiaries and transfer assets to such newly established or created Subsidiaries so long as (i) (x) the aggregate fair market value of all assets transferred to all such Subsidiaries at the time of such transfer does not exceed $100,000 and (y) the aggregate fair market value of all assets held by all such Subsidiaries at any time does not exceed $100,000 and (ii) upon the creation or establishment of any such new Subsidiary such Subsidiary executes the Additional Security Documents and guaranty required to be executed by it in accordance with Section 8.13. Section 10. Events of Default. Upon the occurrence of any of the following specified events (each an "Event of Default"): 10.01 Payments. The Company shall (i) default in the payment when due of any principal of any Loan or any Note or any Unpaid Drawing, or (ii) default, and such default shall continue unremedied for two or more Business Days, in the payment when due of any interest on any Loan, Note or Unpaid Drawing or of any Fee or of other amounts owing hereunder or under any Credit Document; or 10.02 Representations; etc. Any representation, warranty or statement made by the Company or any of its Subsidiaries herein or in any other Credit Document or in any certificate delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 10.03 Covenants. The Company shall (i) default in the due performance or observance by it of any term, covenant or agreement contained in Section 8.01(g)(i), 8.08, 8.11, 8.13, 8.14, 8.15 or Section 9 or (ii) default in the due performance or observance by it of any other term, covenant or agreement contained in this Agreement and such default shall continue unremedied for a period of thirty (30) days after written notice to the Company by the Administrative Agent or any Bank; or -85- 94 10.04 Default Under Other Agreements. The Company or any Subsidiary of the Company shall (i) default in any payment of any Indebtedness (other than the Notes) beyond the period of grace (not to exceed thirty (30) days), if any, provided in the instrument or agreement under which such Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to any Indebtedness (other than the Notes or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such Indebtedness to become due prior to its stated maturity, or (iii) any Indebtedness (other than the Notes) of the Company or any Subsidiary of the Company shall be declared to be due and payable, or required by its terms to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, provided that it shall not be a Default or Event of Default under this Section 10.04 unless the aggregate principal amount of all Indebtedness as described in preceding clauses (i) through (iii), inclusive, is at least $500,000; or 10.05 Bankruptcy; etc. The Company or any Subsidiary of the Company shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Company or any Subsidiary of the Company, and the petition is not controverted within ten (10) days, or is not dismissed or discharged within sixty (60) days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Company or any Subsidiary of the Company, or the Company or any Subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any Subsidiary of the Company, or there is commenced against the Company or any Subsidiary of the Company any such proceeding which remains undismissed or undischarged for a period of sixty (60) days, or the Company or any Subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any Subsidiary of the Company suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of sixty (60) days; or the Company or any Subsidiary of the Company makes a general assignment for the benefit of creditors; or any corporate action is taken by the Company or any Subsidiary of the Company for the purpose of effecting any of the foregoing; or -86- 95 10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code, any Plan is, shall have been or is likely to be terminated or the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, the Company or any Subsidiary of the Company or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204, or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code, or the Company or any Subsidiary of the Company has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) which provide benefits to retired employees (other than as required by Section 601 of ERISA) or employee pension benefit plans (as defined in Section 3(2) of ERISA); (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) which lien, security interest or liability, in the opinion of the Required Banks, will have a material adverse effect upon the business, operations, condition (financial or otherwise) or prospects of the Company or of any Subsidiary; or 10.07 Security Documents. At any time after the execution and delivery thereof, any of the Security Documents shall cease to be in full force and effect or shall cease to give the Collateral Agent for the benefit of the Secured Creditors the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Collateral), in favor of the Collateral Agent, superior to and prior to the rights of all third Persons (except as permitted by Section 7.11), and subject to no other Liens (except as permitted by Section 7.11), or the Company shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any of the Security Documents and such default shall continue beyond any grace period specifically applicable thereto pursuant to the terms of such Security Document; or 10.08 Judgments. One or more judgments or decrees shall be entered against the Company or any Subsidiary of the Company involving in the aggregate for the Company and its Subsidiaries a liability (to the extent not paid or covered by a reputable insurance company which has accepted liability in writing) of $500,000 or more and all such judgments or decrees shall not be vacated, discharged or stayed or bonded pending appeal for any period of thirty (30) consecutive days; or 10.09 Change of Control. A Change of Control shall occur; -87- 96 then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, upon the written request of the Required Banks, shall by written notice to the Company, take any or all of the following actions, without prejudice to the rights of the Administrative Agent, the Collateral Agent, any Bank or the holder of any Note to enforce its claims against the Company (provided, that, if an Event of Default specified in Section 10.05 shall occur with respect to the Company, the result which would occur upon the giving of written notice by the Administrative Agent to the Company as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Commitments terminated, whereupon all Commitments of each Bank shall forthwith terminate immediately and any RL Commitment Commission, D Term Loan Commitment Commission and other Fees shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and the Notes and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company; (iii) terminate any Letter of Credit which may be terminated in accordance with its terms; (iv) direct the Company to pay (and the Company agrees that upon receipt of such notice, or upon the occurrence of an Event of Default specified in Section 10.05 with respect to the Company it will pay) to the Collateral Agent at the Payment Office such additional amount of cash, to be held as security by the Collateral Agent, as is equal to the aggregate Stated Amount of all Letters of Credit issued for the account of the Company and then outstanding; and (v) enforce, as Collateral Agent, all of the Liens and security interests created pursuant to the Security Documents. Section 11. Definitions and Accounting Terms. 11.01 Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "A Facility Percentage" shall mean a fraction (expressed as a percentage) the numerator of which is the A Facility Percentage Amount at such time and the denominator of which is the sum of (w) the A Facility Percentage Amount at such time plus (x) the B Facility Percentage Amount at such time plus (y) the C Facility Percentage Amount at such time plus (z) the D Facility Percentage Amount at such time. "A Facility Percentage Amount" shall mean, at any time, the aggregate principal amount of all outstanding A Term Loans at such time. -88- 97 "A Term Loan" shall have the meaning provided in Section 1.01(a). "A Term Loan Commitment" shall mean, with respect to each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "A Term Loan Commitment," as the same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.12 and/or 13.04. "A Term Loan Maturity Date" shall mean the last Business Day occurring in February 2000. "A Term Loan Scheduled Repayment" shall have the meaning provided in Section 4.02(A)(d). "A Term Loan Scheduled Repayment Date" shall have the meaning provided in Section 4.02(A)(d). "A Term Note" shall have the meaning provided in Section 1.05(a). "Additional Collateral" shall mean all property (whether real or personal) in which security interests are granted (or purport to be granted) (and continue to be in effect at the time of determination) pursuant to Section 8.13. "Additional Mortgage" shall mean and include each of a mortgage, deed of trust or similar security document with respect to Real Property executed and delivered pursuant to Section 8.13. "Additional Mortgaged Property" shall have the meaning provided in Section 8.13. "Additional Security Documents" shall mean all mortgages, pledge agreements, security agreements and other security documents entered into pursuant to Section 8.13 with respect to Additional Collateral. "Adjusted Certificate of Deposit Rate" shall mean, on any day, the sum (rounded to the nearest 1/100 of 1%) of (1) the rate obtained by dividing (x) the most recent weekly average dealer offering rate for negotiable certificates of deposit with a three-month maturity in the secondary market as published in the most recent Federal Reserve System publication entitled "Select Interest Rates," published weekly on Form H.15 as of the date hereof, or if such publication or a substitute containing the -89- 98 foregoing rate information shall not be published by the Federal Reserve System for any week, the weekly average offering rate determined by the Administrative Agent on the basis of quotations for such certificates received by it from three certificate of deposit dealers in New York of recognized standing or, if such quotations are unavailable, then on the basis of other sources reasonably selected by the Agent, by (y) a percentage equal to 100% minus the stated maximum rate of all reserve requirements as specified in Regulation D applicable on such day to a three-month certificate of deposit of a member bank of the Federal Reserve System in excess of $100,000 (including, without limitation, any marginal, emergency, supplemental, special or other reserves), plus (2) the then daily net annual assessment rate as estimated by the Administrative Agent for determining the current annual assessment payable by the Administrative Agent to the Federal Deposit Insurance Corporation for insuring three-month certificates of deposit. "Adjusted Consolidated Net Income" for any period shall mean Consolidated Net Income for such period (i) plus the sum of the amount of all net non-cash charges (including, without limitation, depreciation, amortization (including fixed marketing amortization associated with capitalized slotting and marketing costs), deferred tax expense, non-cash interest expense and other non-cash charges) included in arriving at Consolidated Net Income for such period, (ii) less the sum of the amount of all net non-cash income, gains and credits (exclusive of, in the case of all non-cash items, items reflected in Adjusted Working Capital) included in arriving at Consolidated Net Income for such period and (iii) less the amount of cash proceeds received from sales of assets included in arriving at Consolidated Net Income for such period to the extent that such proceeds were mandatorily applied to repay Loans or cash collateralize Letters of Credit in accordance with Section 4.02(A)(a). "Adjusted Working Capital" shall mean Consolidated Current Assets (excluding cash and Cash Equivalents and excluding the Total Unutilized Revolving Loan Commitment) minus Consolidated Current Liabilities. "Administrative Agent" shall mean Bankers Trust Company, in its capacity as Administrative Agent for the Banks hereunder, and shall include any successor to the Administrative Agent appointed pursuant to Section 12.09. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with, such Person; provided, however, that for purposes of Section 9.07, an Affiliate of the Company shall include any Person that directly or indirectly owns more than 5% of any class of the capital stock of the Company and any officer or director of the Company or any such Person. A Person shall be deemed to control another Person if such -90- 99 Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" shall mean, for the purposes of Section 13.12 only, the Administrative Agent. "Agreement" shall mean this Credit Agreement, as modified, supplemented or amended from time to time. "Applicable Margin" shall mean a percentage per annum equal to (A) in the case of (i) A Term Loans and Revolving Loans which are maintained as Base Rate Loans, 2.00% and (ii) A Term Loans and Revolving Loans which are maintained as Eurodollar Loans, 3.00%, (B) in the case of (i) B Term Loans which are maintained as Base Rate Loans, 2.25% and (ii) B Term Loans which are maintained as Eurodollar Loans, 3.25% and (C) in the case of (i) C Term Loans and D Term Loans which are maintained as Base Rate Loans, 2.75% and (ii) C Term Loans and D Term Loans which are maintained as Eurodollar Loans, 3.75%. "Approved Fund" shall mean, with respect to any Bank that is a fund that invests in bank loans (the "Relevant Bank"), any other fund that invests in bank loans that is managed by the investment manager, or an Affiliate of such manager, that manages the Relevant Bank. "Available Revolving Loan Commitment" for any Bank shall mean, at any time, the Revolving Loan Commitment of such Bank as then in effect less such Bank's RL Percentage of the amount of the Blocked Commitment, if any, at such time. "B Facility Percentage" shall mean a fraction (expressed as a percentage) the numerator of which is the B Facility Percentage Amount at such time and the denominator of which is the sum of (w) the A Facility Percentage Amount at such time plus (x) the B Facility Percentage Amount at such time plus (y) the C Facility Percentage Amount at such time plus (z) the D Facility Percentage Amount at such time. "B Facility Percentage Amount" shall mean, at any time, the aggregate principal amount of all outstanding B Term Loans at such time. "B Term Loan" shall have the meaning provided in Section 1.01(b). -91- 100 "B Term Loan Commitment" shall mean, with respect to each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "B Term Loan Commitment," as the same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.12 and/or 13.04. "B Term Loan Maturity Date" shall mean the last Business Day occurring in February 2002. "B Term Loan Scheduled Repayment" shall have the meaning provided in Section 4.02(A)(e). "B Term Loan Scheduled Repayment Date" shall have the meaning provided in Section 4.02(A)(e). "B Term Note" shall have the meaning provided in Section 1.05(a). "Bank" shall mean each financial institution listed on Schedule I, as well as any institution which becomes a "Bank" hereunder pursuant to Section 1.12 and/or 13.04. "Bank Default" shall mean (i) the refusal (which has not been retracted) of a Bank to make available its portion of any Borrowing or (ii) a Bank having notified in writing the Company and/or the Administrative Agent that it does not intend to comply with its obligations under this Agreement, in either case as a result of any takeover of such Bank by any regulatory authority or agency. "Bankruptcy Code" shall have the meaning provided in Section 10.05. "Bankruptcy Default" shall mean any Default or Event of Default existing with respect to the Company pursuant to Section 10.05. "Base Rate" shall mean the higher of (i) 1/2 of 1% in excess of the Adjusted Certificate of Deposit Rate and (ii) the Prime Lending Rate. "Base Rate Loan" shall mean any Loan designated or deemed designated as such by the Company at the time of the incurrence thereof or conversion thereto. "Blocked Commitment" shall mean (i) for the period from and including the Restatement Effective Date through but not including the earlier of (x) the date on -92- 101 which the condition contained in Section 5A.04 is satisfied and (y) the one month anniversary of the Restatement Effective Date, $10 million and (ii) for the period thereafter, $0. "Borrowing" shall mean the borrowing of one Type of Loan of a single Tranche from all the Banks having Commitments with respect to such Tranche on a given date (or resulting from a conversion or conversions on such date) having in the case of Eurodollar Loans the same Interest Period, provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of the related Borrowing of Eurodollar Loans. "Borrowing Base" shall mean as at any date on which the amount thereof is being determined, an amount equal to the sum of (i) 85% of Eligible Receivables, plus (ii) an amount equal to the lesser of (A) (x) 75% of Eligible Inventory which constitutes finished goods plus (y) 65% of Eligible Inventory which constitutes raw materials plus (z) an amount equal to the lesser of (I) 50% of Eligible Inventory which constitutes unprocessed packaging materials and (II) $1,500,000, and (B) the lesser of (1) $17,000,000 and (2) 10% of Consolidated Revenue for the fiscal quarter then last ended multiplied by four, each as determined from the Borrowing Base Certificate most recently delivered pursuant to Section 8.01(k). "Borrowing Base Certificate" shall have the meaning provided in Section 8.01(k). "Borrowing Base Deficiency" shall mean, at any time, the amount, if any, by which the sum of the aggregate principal amount of outstanding Revolving Loans and the Letter of Credit Outstandings at such time exceeds the Borrowing Base then in effect. "BTCo" shall mean Bankers Trust Company in its individual capacity. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day except Saturday, Sunday and any day which shall be in New York City a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) above and which is also a day for trading by and between banks in the New York interbank Eurodollar market. -93- 102 "C Facility Percentage" shall mean a fraction (expressed as a percentage) the numerator of which is the C Facility Percentage Amount at such time and the denominator of which is the sum of (w) the A Facility Percentage Amount at such time plus (x) the B Facility Percentage Amount at such time plus (y) the C Facility Percentage Amount at such time plus (z) the D Facility Percentage Amount at such time. "C Facility Percentage Amount" shall mean, at any time, the aggregate principal amount of all outstanding C Term Loans at such time. "C Term Loan" shall have the meaning provided in Section 1.01(c). "C Term Loan Commitment" shall mean, with respect to each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "C Term Loan Commitment," as the same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.12 and/or 13.04. "C Term Loan Maturity Date" shall mean the last Business Day occurring in February 2004. "C Term Loan Scheduled Repayment" shall have the meaning provided in Section 4.02(A)(f). "C Term Loan Scheduled Repayment Date" shall have the meaning provided in Section 4.02(A)(f). "C Term Note" shall have the meaning provided in Section 1.05(a). "Capital Expenditure Plan" shall have the meaning provided in Section 5.08. "Capital Expenditures" shall mean, with respect to any Person, all expenditures by such Person which should be capitalized in accordance with generally accepted accounting principles, including all such expenditures with respect to fixed or capital assets (including, without limitation, expenditures for maintenance and repairs which should be capitalized in accordance with generally accepted accounting principles) and amounts representing capitalized slotting and other marketing costs (whether or not such amounts should be capital expenditures in accordance with generally accepted accounting principles) and, without duplication, the amount of -94- 103 Capitalized Lease Obligations incurred by such Person, provided that Capital Expenditures shall not include interest capitalized in accordance with generally accepted accounting principles. "Capitalized Lease Obligations" of any Person shall mean all rental obligations which, under generally accepted accounting principles, are or will be required to be capitalized on the books of such Person, in each case taken at the amount thereof accounted for as indebtedness in accordance with such principles. "Cash Equivalents" shall mean, as to any Person, (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (ii) time deposits and certificates of deposit of (x) any Bank or (y) any other commercial bank having, or which is the principal banking subsidiary of a bank holding company having, a long-term unsecured debt rating of at least "A" or the equivalent thereof from Standard & Poor's Corporation ("S&P") or "A2" or the equivalent thereof from Moody's Investors Service, Inc. ("Moody's") with maturities of not more than six months from the date of acquisition by such Person, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Person incorporated in the United States rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's and in each case maturing not more than six months after the date of acquisition by such Person and (v) investments in money market funds substantially all of whose assets are comprised of securities of the types described in clauses (i) through (iv) above. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. Section 9601 et seq. "Change of Control" shall mean and include the occurrence of either of the following events: MSLEF II shall cease to have record and beneficial ownership of at least a majority of the Company's outstanding voting stock or shall cease to have the power (whether or not exercised) to elect a majority of the Company's Board of Directors. "Class A Common Stock" shall mean the Class A Common Stock of the Company, $0.01 par value per share. -95- 104 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement, and to any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all property (whether real or personal) with respect to which any security interests have been granted (or purport to be granted) (and continue to be in effect at the time of determination) pursuant to any Security Document, including, without limitation, all Pledge Agreement Collateral, all Security Agreement Collateral, the Mortgaged Properties, all Additional Collateral, the Additional Mortgaged Properties and all cash and Cash Equivalents delivered at any time as collateral pursuant to this Agreement or any other Credit Document. "Collateral Agent" shall mean the Administrative Agent acting as collateral agent (as well as any sub-agent or trustee appointed by the Collateral Agent) for the Secured Creditors pursuant to the Security Documents. "Collective Bargaining Agreements" shall have the meaning provided in Section 5.07. "Commitment" shall mean, with respect to each Bank, such Bank's A Term Loan Commitment, B Term Loan Commitment, C Term Loan Commitment, D Term Loan Commitment or Revolving Loan Commitment. "Common Stock" shall mean the common stock of the Company, no par value. "Company" shall have the meaning provided in the first paragraph of this Agreement. "Consolidated Current Assets" shall mean, at any time, the consolidated current assets of the Company and its Subsidiaries at such time plus the Total Unutilized Revolving Loan Commitment. "Consolidated Current Liabilities" shall mean, at any time, the consolidated current liabilities of the Company and its Subsidiaries at such time, but excluding the current portion of any long-term Indebtedness and any Revolving Loans which would otherwise be included therein. -96- 105 "Consolidated EBITDA" shall mean, for any period, the Consolidated Net Income of the Company and its Subsidiaries, before interest income, Consolidated Interest Expense and provision for taxes and without giving effect to (x) any extraordinary gains or gains from sales of assets other than inventory sold in the ordinary course of business (determined after taking into account losses from sales of such assets) and (y) the write-off of deferred debt issuance costs (including, without limitation, all legal fees, financing fees and all other costs and expenses incurred in connection with any amendment to the Existing Credit Agreement and any amendment to this Agreement) and adjusted by adding thereto the amount of all amortization of intangibles and depreciation and other non-cash charges related to stock options and similar employee benefit plans that were deducted in arriving at Consolidated Net Income for such period. "Consolidated Interest Expense" shall mean, for any period, the total consolidated interest expense of the Company and its Subsidiaries for such period (calculated without regard to any limitations on the payment thereof but excluding amortization of all deferred debt issuance costs (including, without limitation, all legal fees, financing fees and all other costs and expenses incurred in connection with any amendment to the Existing Credit Agreement and any amendment to this Agreement)), including, but not limited to, interest capitalized in accordance with generally accepted accounting principles, plus, without duplication, that portion of Capitalized Lease Obligations of the Company and its Subsidiaries representing the interest factor for such period. "Consolidated Net Income" shall mean, for any period, the net after-tax income of the Company and its Subsidiaries for such period determined on a consolidated basis. "Consolidated Net Worth" shall mean the net worth of the Company and its Subsidiaries determined on a consolidated basis. "Consolidated Revenue" shall mean, for any period, the net revenue of the Company and its Subsidiaries determined on a consolidated basis. "Contingent Obligation" shall mean, as to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation -97- 106 or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "CPC" shall mean CPC International Inc., a Delaware corporation. "CPC Contract" shall mean the Manufacturing and Distribution Agreement dated April 15, 1997 between CPC and the Company. "Credit Documents" shall mean this Agreement and, after the execution and delivery thereof, each Note, each Notice of Borrowing, each Notice of Conversion, each Letter of Credit, each Letter of Credit Request and each Security Document. "Credit Event" shall mean the making of any Loan and the issuance of any Letter of Credit. "CVC" shall mean Citicorp Venture Capital, Ltd., a New York corporation. "D Facility Percentage" shall mean a fraction (expressed as a percentage) the numerator of which is the D Facility Percentage Amount at such time and the denominator of which is the sum of (w) the A Facility Percentage Amount at such time plus (x) the B Facility Percentage Amount at such time plus (y) the C Facility Percentage Amount at such time plus (z) the D Facility Percentage Amount at such time. "D Facility Percentage Amount" shall mean, at any time, the aggregate principal amount of all outstanding D Term Loans at such time. "D Term Loan" shall have the meaning provided in Section 1.01(d). -98- 107 "D Term Loan Certificate" shall have the meaning provided in Section 5A.02. "D Term Loan Commitment" shall mean, with respect to each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "D Term Loan Commitment," as the same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.12 and/or 13.04. "D Term Loan Commitment Commission" shall have the meaning provided in Section 3.01(b). "D Term Loan Maturity Date" shall mean the last Business Day occurring in February 2004. "D Term Loan Scheduled Repayment" shall have the meaning provided in Section 4.02(A)(g). "D Term Loan Scheduled Repayment Date" shall have the meaning provided in Section 4.02(A)(g). "D Term Loan Termination Date" shall mean March 31, 1998. "D Term Note" shall have the meaning provided in Section 1.05(a). "Debt Agreements" shall have the meaning provided in Section 5.07. "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Deferred Loans" shall have the meaning provided in Section 5.03. "Dividend" with respect to any Person shall mean that such Person has declared or paid a dividend or returned any equity capital to its stockholders or authorized or made any other distribution, payment or delivery of property (other than common stock of such Person) or cash to its stockholders as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for a consideration any shares of any class of its capital stock outstanding on or after the Restatement Effective Date (or any options or warrants issued by such Person with respect to its capital stock), or set aside any funds for any of the foregoing purposes, or shall have permitted any of -99- 108 its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock of such Person outstanding on or after the Restatement Effective Date (or any options or warrants issued by such Person with respect to its capital stock). Without limiting the foregoing, "Dividends" with respect to any Person shall also include all payments made or required to be made by such Person with respect to any stock appreciation rights, plans, equity incentive or achievement plans or any similar plans or setting aside of any funds for the foregoing purposes. "Documents" shall mean the Credit Documents, the CPC Contract and each of the other agreements, instruments and other documents executed and delivered in connection with the transactions contemplated hereby on the Restatement Effective Date. "Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States. "Drawing" shall have the meaning provided in Section 2.05(b). "Eligible Inventory" shall mean the gross dollar value (valued at the lower of cost or market value) of the inventory of the Company and its Subsidiaries which conform to the representations and warranties contained in the Security Agreement and which inventory is located in the United States and constitutes raw materials, unprocessed packaging materials or finished goods and which is not, in the Company's good faith opinion consistent with past practices, excess, obsolete or unmerchantable, less (i) any supplies (other than raw materials), spare parts, goods returned or rejected (except to the extent that such returned or rejected goods continue to conform to the representations and warranties contained in the Security Agreement and continue to be acceptable to the Collateral Agent in its reasonable judgment) by customers and goods returned to suppliers, (ii) any advance payments made by customers with respect to inventory of the Company and its Subsidiaries, (iii) inventory subject to any Lien other than the Liens created under the Security Documents, (iv) any market reserves maintained by the Company and its Subsidiaries and (v) any reserves required by the Collateral Agent in its reasonable judgment for special orders of goods, market value declines and bill and hold (deferred shipment) sales. "Eligible Receivables" shall mean the total face amount of the receivables of the Company and its Subsidiaries which conform to the representations and warranties contained in the Security Agreement (including, without limitation, that the Collateral Agent shall have and maintain a first priority perfected security interest in all such receivables) less any returns, discounts, claims, credit and allowances of any nature (whether issued, owing, granted or outstanding) and less reserves for any other -100- 109 matter affecting the creditworthiness of account debtors owing the receivables and excluding (i) bill and hold (deferred shipment) transactions, (ii) contracts or sales to any Affiliate (except companies which are Affiliates of the Company solely because MSLEF II has an ownership interest in such company so long as such contracts or sales are on terms and conditions substantially as favorable to the Company or any of its Subsidiaries as would be obtainable by the Company or such Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate), (iii) all receivables which have not been paid in full within 60 days of the due date thereof or which have been disputed by the account debtor and (iv) sales to account debtors outside the United States and Canada. "Eligible Transferee" shall mean and include a commercial bank, financial institution, other "accredited investor" (as defined in Regulation D of the Securities Act) or a "qualified institutional buyer" as defined in Rule 144A of the Securities Act or an Approved Fund. "Employee Benefit Plans" shall have the meaning provided in Section 5.07. "Employment Agreements" means the Employment Agreement dated as of October 30, 1995, between the Company and Timothy S. Webster, and the Employment Agreement dated as of October 30, 1992 between the Company and Norman F. Abreo. "Endorsements" shall have the meaning provided in Section 5.11. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, directives, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Law" means any federal, state or local statute, law, rule, regulation, ordinance, code, guideline, written policy and rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative -101- 110 interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300(f) et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 et seq., and any state and local counterparts or equivalents thereof. "Equity Financing" shall have the meaning provided in Section 5.02. "Equity Financing Documents" shall have the meaning provided in Section 5.02. "Equity Financing Notes" shall mean one or more promissory notes in an aggregate principal amount of not less than $200,000 issued by certain members of management of the Company to the Company as consideration for common stock of the Company so long as all of the terms and conditions of each such promissory note are in form and substance satisfactory to the Administrative Agent. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement, and to any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with the Company or any of its Subsidiaries would be deemed to be a "single employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code. "Eurodollar Loan" shall mean each Loan designated as such by the Company at the time of the incurrence thereof or conversion thereto. "Event of Default" shall have the meaning provided in Section 10. "Excess Cash Flow" shall mean, for any period, the remainder of (i) the sum of (a) Adjusted Consolidated Net Income, less interest capitalized in accordance with generally accepted accounting principles, for such period and (b) the decrease, if any, in Adjusted Working Capital from the first day to the last day of such period, minus (ii) the sum of (a) the amount of cash consideration paid by the Company and -102- 111 its Subsidiaries in respect of Capital Expenditures (to the extent not financed with Indebtedness, but not in excess of the amounts permitted pursuant to Section 9.08 and without deducting the Capital Expenditures made pursuant to the third to last sentence of Section 9.08(a)) during such period, (b) the amount of permanent principal payments of Indebtedness for borrowed money of the Company or any of its Subsidiaries (other than (1) payments made in respect of the Transaction and (2) repayments of Loans, provided that repayments of Loans shall be deducted in determining Excess Cash Flow if such repayments were required as a result of Scheduled Repayments required to be made during such period or made as a voluntary prepayment with internally generated funds (but in the case of a voluntary prepayment of Revolving Loans, only to the extent accompanied by a voluntary reduction to the Total Revolving Loan Commitment)) during such period, (c) the increase, if any, in Adjusted Working Capital from the first day to the last day of such period, (d) the amount of cash expended by the Company in connection with debt financing costs, packaging design and slotting fees during such period, which cash expended is capitalized and (e) without duplication, an amount of cash expended by the Company to purchase other assets in the ordinary course of business not in excess of $50,000 during such period. "Excess Cash Flow Recapture Period" shall mean with respect to the repayment required on each Excess Cash Payment Date, the immediately preceding fiscal year of the Company. "Excess Cash Payment Date" shall mean the date occurring ninety (90) days after the last day of each fiscal year of the Company. "Existing A Term Loans" shall mean the "A Term Loans" under, and as defined in, the Existing Credit Agreement. "Existing Agent" shall mean BTCo as "Agent" under, and as defined in, the Existing Credit Agreement. "Existing B Term Loans" shall mean the "B Term Loans" under, and as defined in, the Existing Credit Agreement. "Existing Banks" shall mean each Person which was a "Bank" under, and as defined in, the Existing Credit Agreement immediately prior to the Restatement Effective Date. "Existing C Term Loans" shall mean the "C Term Loans" under, and as defined in, the Existing Credit Agreement. -103- 112 "Existing Credit Agreement" shall have the meaning provided in the first Whereas clause of this Agreement. "Existing Letters of Credit" shall mean (i) Existing Standby Letters of Credit and (ii) Existing Trade Letters of Credit. "Existing Loans" shall mean collectively, the Existing A Term Loans, the Existing B Term Loans, the Existing C Term Loans and the Existing Revolving Loans. "Existing Mortgage Amendments" shall have the meaning provided in Section 5.11. "Existing Mortgaged Property" shall have the meaning provided in Section 5.11. "Existing Mortgages" shall mean (i) the Original Mortgage and (ii) the South Carolina Mortgage, in each case as amended, modified or supplemented from time to time. "Existing Obligations" shall have the meaning provided in Section 7.21. "Existing Revolving Loans" shall mean all "Revolving Loans" under, and as defined in, the Existing Credit Agreement. "Existing Standby Letters of Credit" shall have the meaning provided in Section 2.01(a). "Existing Trade Letters of Credit" shall mean each of the "Trade Letters of Credit" issued under, and as defined in, the Existing Credit Agreement. "Facing Fee" shall have the meaning provided in Section 3.01(d). "Fees" shall mean all amounts payable pursuant to or referred to in Section 3.01. "Final Maturity Date" shall mean the last Business Day occurring in February 2004. "Hazardous Materials" means (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea -104- 113 formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous waste," "hazardous materials," "extremely hazardous substances," "restricted hazardous substances," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority. "Indebtedness" shall mean, as to any Person, without duplication, (i) all indebtedness (including principal, interest, fees and charges) of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables and construction trade payables incurred in the ordinary course of business), (ii) the maximum amount available to be drawn under all letters of credit issued for the account of such Person and all unpaid drawings in respect of such letters of credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (iv) all Capitalized Lease Obligations of such Person, (v) all obligations of such Person to pay a specified purchase price for goods or services, whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent Obligations of such Person and (vii) all obligations under any Interest Rate Protection or Other Hedging Agreement or under any similar type of agreement entered into with a Person not a Bank. "Indemnitee" shall have the meaning provided in Section 13.01. "Initial D Term Loan Eurodollar Loan Borrowing Date" shall mean the first date occurring at least three Business Days following the Restatement Effective Date on which a Borrowing of D Term Loans which constitute Eurodollar Loans occurs (including as a result of a conversion on such date). "Initial Revolving Loan Eurodollar Loan Borrowing Date" shall mean the first date occurring at least three Business Days following the Restatement Effective Date on which a Borrowing of Revolving Loans which constitute Eurodollar Loans occurs (including as a result of a conversion on such date). "Intellectual Property" shall have the meaning provided in Section 7.20. "Interest Determination Date" shall mean, with respect to any Eurodollar Loan, the second Business Day prior to the commencement of any Interest Period relating to such Eurodollar Loan. -105- 114 "Interest Period" shall have the meaning provided in Section 1.09. "Interest Rate Protection or Other Hedging Agreements" shall have the meaning provided in the Security Documents. "Issuing Bank" shall mean (A) with respect to each Existing Letter of Credit, the Issuing Bank set forth in Schedule II for such Letter of Credit and (b) with respect to all other Letters of Credit, (x) BTCo and (y) any other Bank with a Revolving Loan Commitment, to the extent such Bank agrees in its sole discretion (and the Company and the Administrative Agent consent), to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2. "L/C Supportable Indebtedness" shall mean (i) obligations of the Company incurred in the ordinary course of business with respect to workers compensation, surety bonds and other similar statutory obligations and (ii) such other obligations of the Company as are reasonably acceptable to the Issuing Bank and the Administrative Agent and otherwise permitted to exist pursuant to the terms of this Agreement. "Lease Agreement" shall mean the Lease Agreement, dated as of December 29, 1995, between Richland County, South Carolina and the Company. "Leaseholds" of any Person means all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures. "Letter of Credit" shall have the meaning provided in Section 2.01(a). "Letter of Credit Fee" shall have the meaning provided in Section 3.01(c). "Letter of Credit Outstandings" shall mean, at any time, the sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii) the amount of all Unpaid Drawings. "Letter of Credit Request" shall have the meaning provided in Section 2.03(a). "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement of any kind or nature whatsoever (including, without -106- 115 limitation, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any other similar recording or notice statute, and any lease having substantially the same effect as any of the foregoing). "Loan" shall mean each A Term Loan, each B Term Loan, each C Term Loan, each D Term Loan and each Revolving Loan. "Management Agreements" means the Consulting Agreement dated as of October 30, 1992 by and among the Company, Horst W. Schroeder and HWS & Associates. "Manufacturing Facilities" shall mean the Missouri Facility and the South Carolina Facility. "Margin Stock" shall mean "Margin Stock" under, and as defined in, Regulation G or Regulation U. "Material Adverse Effect" shall mean a material adverse effect on the business, property, assets, nature of assets, liabilities, condition (financial or otherwise) or prospects of the Company or the Company and its Subsidiaries taken as a whole. "Maturity Date" shall mean the date upon which the Loans incurred under the respective Tranches and the Notes evidencing such Loans mature, i.e., whether the A Term Loan Maturity Date, the B Term Loan Maturity Date, the C Term Loan Maturity Date, the D Term Loan Maturity Date or the Revolving Loan Maturity Date. "Missouri Facility" shall mean the facility (including all property, fixtures, plant and equipment) of the Company located on approximately 88 acres of land at 1000 Italian Way, Excelsior Springs, Missouri and which is used by the Company for the manufacture and distribution of pasta products. The Missouri Facility includes, without limitation, the Company's executive offices, durum wheat mill, pasta production facility and warehouses and all land not yet used for production. "Mortgage Policies" shall mean the mortgage title insurance policies issued in respect of each of the Mortgaged Properties. "Mortgaged Properties" shall mean the Existing Mortgaged Properties and, after the execution and delivery of any other Additional Mortgage, shall include the Additional Mortgaged Property with respect thereto. -107- 116 "MSLEF II" shall mean The Morgan Stanley Leveraged Equity Fund II, L.P., a Delaware limited partnership. "Net Cash Proceeds" shall mean with respect to any sale or issuance of equity the cash proceeds thereof less underwriting discounts, commissions and other reasonable costs associated therewith. "Net Sale Proceeds" shall mean, from any sale of assets, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received) received from such sale of assets, net of (i) reasonable transaction costs, (ii) the amount of such gross cash proceeds required to be used to repay any Indebtedness (other than Indebtedness of the Secured Creditors secured pursuant to the Security Documents) which is secured by the respective assets which were sold, and (iii) the estimated marginal increase in income taxes which will be payable by the Company's consolidated group with respect to the fiscal year in which the sale occurs as a result of such sale. "New Bank" shall mean each Bank on the Restatement Effective Date which is not an Existing Bank. "Note" shall mean each A Term Note, each B Term Note, each C Term Note, each D Term Note and each Revolving Note. "Notice of Borrowing" shall have the meaning provided in Section 1.03. "Notice of Conversion" shall have the meaning provided in Section 1.06. "Notice Office" shall mean the office of the Administrative Agent located at 233 South Wacker Drive, Chicago, Illinois 60606, Attention: John Moses, Managing Director or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "Obligations" shall mean all amounts owing to the Agent, the Collateral Agent or any Bank pursuant to the terms of this Agreement or any other Credit Document. "Option Proceeds" shall have the meaning provided in Section 4.02(A)(h). "Option Proceeds Payment Period" shall have the meaning provided in Section 4.02(A)(h). -108- 117 "Original Agent" shall mean BTCo as "Agent" under, and as defined in, the Original Credit Agreement. "Original Credit Agreement" shall mean the Credit Agreement, dated as of October 30, 1992, among the Company, the Banks party thereto and the Original Agent. "Original Effective Date" shall mean the "Effective Date" under, and as defined in, the Original Credit Agreement. "Original Mortgage" shall mean the "Mortgage" under, and as defined in, the Original Credit Agreement. "Original Restatement Effective Date" shall mean the "Restatement Effective Date" under, and as defined in, the Existing Credit Agreement. "Original Security Documents" shall mean the "Security Documents" delivered pursuant to, and as defined in, the Original Credit Agreement. "Participant" shall have the meaning provided in Section 2.04(a). "Payment Office" shall mean the office of the Administrative Agent located at One Bankers Trust Plaza, New York, New York 10006, or such other office as the Administrative Agent may hereafter designate in writing as such to the other parties hereto. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA or any successor thereto. "Permitted Capital Expenditures" shall mean Capital Expenditures made by the Company with the proceeds of Permitted Capital Expenditure Financing and in accordance with and as contemplated by the Capital Expenditure Plan, in each case related to (i) the expansion of the South Carolina Facility (other than as set forth in clauses (ii) and (iii) below), (ii) the increase in the capacity of the distribution center at the South Carolina Facility (other than as set forth in clause (iii)), (iii) the purchase of (a) packaging equipment and (b) palletizing or other distribution center related equipment, in each case in connection with the increase in capacity of the South Carolina Facility or the Missouri Facility, or (iv) the purchase of equipment for the Missouri Facility, all of which Capital Expenditures shall be on Real Property of the Company which is a Mortgaged Property on the date on which the Permitted Capital Expenditure is made. -109- 118 "Permitted Capital Expenditure Financing" shall mean (x) Equity Financing, (y) D Term Loans, and (z) Permitted Capital Expenditure Indebtedness; provided that no Equity Financing or D Term Loans shall constitute Permitted Capital Expenditure Financing for Permitted Capital Expenditures of the type set forth in clauses (ii) and (iii) of the definition thereof. "Permitted Capital Expenditure Indebtedness" shall mean Indebtedness of the Company the proceeds of which is used to finance Permitted Capital Expenditures of the type set forth in clauses (ii) and/or (iii) of the definition thereof; provided that all of the terms and conditions (including, without limitation, the maturity) of any such Permitted Capital Expenditure Indebtedness and the documentation therefor shall be in form and substance satisfactory to the Administrative Agent. "Permitted Encumbrance" shall mean, with respect to any Mortgaged Property, such exceptions to title as are set forth in the title insurance policy delivered with respect thereto, all of which exceptions must be acceptable, on the date of the delivery of such title insurance policy, to the Administrative Agent and the Required Banks in their sole discretion. "Permitted Filot Transaction" shall mean the sale and the subsequent leaseback of the South Carolina Facility to and from Richland County, South Carolina and of the equipment and machinery used by the Company located thereon pursuant to, and in accordance with the terms of, the Permitted Filot Transaction Documents. "Permitted Filot Transaction Documents" shall mean (i) the Bill of Sale, dated as of December 29, 1995, between the Company and Richland County, South Carolina, (ii) the Lease Agreement and (iii) the Deed, dated as of December 29, 1995, between Richland County, South Carolina and the Company. "Permitted Liens" shall have the meaning provided in Section 9.01. "Person" shall mean any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" shall mean any multiemployer or single-employer plan as defined in Section 4001 of ERISA and which is subject to any of the requirements of Title IV of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of), or at any time during the five calendar years preceding the date of any -110- 119 Credit Event was maintained or contributed to by (or to which there was an obligation to contribute of), the Company or any of its Subsidiaries or an ERISA Affiliate. "Pledge Agreement" shall have the meaning provided in Section 5.09. "Pledge Agreement Collateral" shall mean all "Collateral" as defined in the Pledge Agreement. "Pledged Securities" shall have the meaning assigned that term in the Pledge Agreement. "Prime Lending Rate" shall mean the rate which the Administrative Agent announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Administrative Agent may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "Projections" shall have the meaning provided in Section 5.17. "Quarterly Payment Date" shall mean the last Business Day of each February, May, August and November occurring after the Restatement Effective Date. "Quoted Rate" shall mean (a) the offered quotation to first-class banks in the New York interbank Eurodollar market by the Administrative Agent for U.S. dollar deposits of amounts in immediately available funds comparable to the outstanding principal amount of the Eurodollar Loan of the Administrative Agent for which an interest rate is then being determined with maturities comparable to the Interest Period to be applicable to such Eurodollar Loan as determined as of 10:00 A.M. (New York time) on the date which is two Business Days prior to the commencement of such Interest Period, divided (and rounded off to the nearest 1/16 of 1%) by (b) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves required by applicable law) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). "RCRA" shall mean the Resources Conservation and Recovery Act, as the same may be amended from time to time, 42 U.S.C. Section 6901 et seq. -111- 120 "Real Property" of any Person shall mean all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds. "Register" shall have the meaning provided in Section 8.14. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Regulation G" shall mean Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or any portion thereof. "Regulation T" shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or any portion thereof. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. "Regulation X" shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or any portion thereof. "Release" means disposing, discharging, injecting, spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing, pouring and the like, into or upon any land or water or air, or otherwise entering into the environment. "Replaced Bank" shall have the meaning provided in Section 1.12. "Replacement Bank" shall have the meaning provided in Section 1.12. "Reportable Event" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan as to which the thirty-day notice requirement has not been waived by the PBGC. "Required A Facility Banks" shall mean Banks, the sum of whose outstanding A Term Loans represent an amount greater than 50% of all outstanding A Term Loans made by all Banks. -112- 121 "Required B Facility Banks" shall mean Banks, the sum of whose outstanding B Term Loans represent an amount greater than 50% of all outstanding B Term Loans made by all Banks. "Required Banks" shall mean Banks, the sum of whose outstanding Term Loans, D Term Loan Commitments and Revolving Loan Commitments (or if after the Total Revolving Loan Commitment has terminated, the sum of outstanding Revolving Loans and RL Percentages of Letter of Credit Outstandings) represent an amount greater than 50% of the sum of all outstanding Term Loans, Total D Term Loan Commitment and Total Revolving Loan Commitment (or after the termination thereof, the sum of the then total outstanding Revolving Loans and Letter of Credit Outstandings). "Required C Facility Banks" shall mean Banks, the sum of whose outstanding C Term Loans represent an amount greater than 50% of all outstanding C Term Loans made by all Banks. "Required D Facility Banks" shall mean Banks, the sum of whose outstanding D Term Loans and D Term Loan Commitments represent an amount greater than 50% of all outstanding D Term Loans made by all Banks and the Total D Term Loan Commitment. "Restatement Effective Date" shall have the meaning provided in Section 13.10. "Returns" shall have the meaning provided in Section 7.09. "Revolving Loan Commitment" shall mean, with respect to each Bank, the amount set forth opposite such Bank's name in Schedule I hereto directly below the column entitled "Revolving Loan Commitment," as the same may be (x) reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to or from such Bank pursuant to Section 1.12 and/or 13.04. "Revolving Loan Maturity Date" shall mean, with respect to each Bank, the last Business Day occurring in February 2000. "Revolving Loans" shall have the meaning provided in Section 1.01(e). "Revolving Note" shall have the meaning provided in Section 1.05(a). -113- 122 "RL Commitment Commission" shall have the meaning provided in Section 3.01(a). "RL Percentage" shall mean, for any Bank with a Revolving Loan Commitment, at any time, a fraction (expressed as a percentage) the numerator of which is the Revolving Loan Commitment of such Bank at such time and the denominator of which is the Total Revolving Loan Commitment at such time, provided that if the RL Percentage of any Bank is to be determined after the Total Revolving Loan Commitment has been terminated, then the RL Percentages of such Banks shall be determined immediately prior (and without giving effect) to such terminations. "Scheduled Repayment" shall mean an A Term Loan Scheduled Repayment, a B Term Loan Scheduled Repayment, a C Term Loan Scheduled Repayment, or a D Term Loan Scheduled Repayment, as the case may be. "SEC" shall have the meaning provided in Section 8.01(h). "Second Amendment to Existing Credit Agreement" shall mean the Second Amendment to Existing Credit Agreement, dated as of August 20, 1996, among the Company, the banks then party to the Existing Credit Agreement and BTCo as Existing Agent. "Section 4.04(b)(ii) Certificate" shall have the meaning provided in Section 4.04(b)(ii). "Secured Creditors" shall mean the Banks, the Administrative Agent, the Collateral Agent and any Bank (or subsequent assignee thereof) which on the date hereof is, or subsequently becomes, party to any Interest Rate Protection or Other Hedging Agreement. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Security Agreement" shall have the meaning provided in Section 5.10. "Security Agreement Collateral" shall mean all "Collateral" as defined in the Security Agreement. "Security Documents" shall mean the Pledge Agreement, the Security Agreement, the Existing Mortgages, the Additional Security Documents and the other Additional Mortgages. -114 123 "Shareholders' Agreements" shall have the meaning provided in Section 5.07. "South Carolina Facility" shall mean the facility (including all leaseholds, property, fixtures, plant and equipment) of the Company located on approximately 60 acres of land in Richland County, South Carolina and which is used by the Company for the manufacture and distribution of pasta products. "South Carolina Mortgage" shall mean the Open-End Mortgage, Security Agreement, Assignment of Leases, Rents and Profits, Financing Statement and Fixture Filing, dated as of October 3, 1994, between the Company and the Collateral Agent. "Standby Letter of Credit" shall have the meaning provided in Section 2.01(a). "Stated Amount" of each Letter of Credit shall, at any time, mean the maximum amount available to be drawn thereunder at such time (in each case determined without regard to whether any conditions to drawing could then be met). "Stock Option Plans" means the Nonqualified Stock Option Agreement dated as of October 30, 1992 between the Company and Timothy S. Webster, the Nonqualified Stock Option Agreement dated as of October 30, 1992 between the Company and Horst W. Schroeder, the Nonqualified Stock Option Agreement dated as of October 30, 1992 between the Company and Kevin C. Steingart, the Nonqualified Stock Option Agreement dated as of October 30, 1992 between the Company and Norman F. Abreo, the American Italian Pasta Company 1992 Stock Option Plan and the American Italian pasta Company 1993 Nonqualified Stock Option Plan, and options under those plans granted to employees of the Company. "Subsidiary" shall mean, as to any Person, (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person and/or one or more Subsidiaries of such Person and (ii) any partnership, association, firm, joint venture or other entity or enterprise in which such Person and/or one or more Subsidiaries of such Person has more than a 50% equity interest at the time. "Supplemental Equity Contribution" shall mean the issuance by the Company of common stock to existing holders of common stock on or prior to the 30th -115- 124 day following the Restatement Effective Date from which the Company receives Net Cash Proceeds of not more than $2,500,000, all the terms and conditions of which and all the documentation relating to which are in form and substance satisfactory to the Administrative Agent. "Syndication Agent" shall mean Bankers Trust Company, in its capacity as Syndication Agent for the Banks hereunder. "Syndication Termination Date" shall mean the date which is the earlier of (i) the last day of the second month following the Restatement Effective Date or (ii) a date on which the Administrative Agent, in its sole discretion, determines (and notifies the Company) that the primary syndication of the D Term Loans and the Total Revolving Loan Commitment (and the resultant addition of institutions as Banks pursuant to Section 13.04) has been completed. "Sysco" shall mean Sysco Corporation, a Delaware corporation. "Sysco Contract" shall mean the Supplier Agreement, dated as of August 1, 1986, between the Company and Sysco as amended and extended on or prior to the Original Effective Date. "Tax Sharing Agreements" shall have the meaning provided in Section 5.07. "Taxes" shall have the meaning provided in Section 4.04. "Term Loan Commitment" shall mean, for each Bank, such Bank's A Term Loan Commitment, B Term Loan Commitment, C Term Loan Commitment and D Term Loan Commitment. "Term Loans" shall mean each of the A Term Loans, B Term Loans, C Term Loans and D Term Loans. "Test Period" shall mean for any determination under this Agreement the four consecutive fiscal quarters of the Company ended on the date of determination (or, if such date of determination is not the last day of a fiscal quarter of the Company, the four consecutive fiscal quarters of the Company last ended prior to such date of determination), taken as one accounting period. "Total A Term Loan Commitment" shall mean, at any time, the sum of the A Term Loan Commitments of each of the Banks. -116- 125 "Total Additional Revolving Commitment" shall mean an additional portion of the Total Revolving Loan Commitment under the Existing Credit Agreement in the principal amount of $2,500,000 made available to the Company pursuant to the Second Amendment to Existing Credit Agreement. "Total Available Revolving Loan Commitment" shall mean, at any time, the sum of the Available Revolving Loan Commitments of each of the Banks. "Total B Term Loan Commitment" shall mean, at any time, the sum of the B Term Loan Commitments of each of the Banks. "Total C Term Loan Commitment" shall mean, at any time, the sum of the C Term Loan Commitments of each of the Banks. "Total Commitment" shall mean, at any time, the sum of the Commitments of each of the Banks. "Total D Term Loan Commitment" shall mean, at any time, the sum of the D Term Loan Commitments of each of the Banks. "Total Revolving Loan Commitment" shall mean, at any time, the sum of the Revolving Loan Commitments of each of the Banks. "Total Unutilized Revolving Loan Commitment" shall mean, at any time, an amount equal to the remainder of (i) the then Total Revolving Loan Commitment less (ii) the sum of the aggregate principal amount of Revolving Loans then outstanding at such time plus the Letter of Credit Outstandings at such time. "Trade Letter of Credit" shall have the meaning provided in Section 2.01(a). "Tranche" shall mean the respective facility and commitments utilized in making Loans hereunder, with there being five separate Tranches, i.e., A Term Loans, B Term Loans, C Term Loans, D Term Loans and Revolving Loans. "Transaction" shall mean and include each of (i) the Credit Events occurring on the Restatement Effective Date, (ii) the making of the payments required by Section 5.03 (including, without limitation, the repayment in full of each of the Existing Revolving Loans and the Deferred Loans and all accrued interest thereon on the Restatement Effective Date), (iii) the Equity Financing, (iv) the entering into of the -117- 126 CPC Contract, (v) the payment of the Transaction Fees and Expenses and (vi) the occurrence of the Restatement Effective Date. "Transaction Fees and Expenses" shall mean all fees and expenses incurred in connection with and arising out of the Transaction. "Type" shall mean the type of Loan determined with regard to the interest option applicable thereto, i.e., whether a Base Rate Loan or a Eurodollar Loan. "UCC" shall mean the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "Unfunded Current Liability" of any Plan means the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year, determined in accordance with Statement of Executive Accounting Standards No. 87, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan, exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code. "United States" and "U.S." shall each mean the United States of America. "Unpaid Drawing" shall have the meaning provided for in Section 2.05(a). "Unutilized Revolving Loan Commitment" with respect to any Bank at any time shall mean such Bank's Revolving Loan Commitment at such time less the sum of (i) the aggregate outstanding principal amount of all Revolving Loans made by such Bank and (ii) such Bank's RL Percentage of the Letter of Credit Outstandings at such time. "Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation 100% of whose capital stock (other than director's qualifying shares) is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time. -118- 127 Section 12. The Administrative Agent. 12.01 Appointment. The Banks hereby designate BTCo as Administrative Agent and Syndication Agent (for purposes of this Section 12, the term "Administrative Agent" shall include BTCo in its capacity as Administrative Agent and Syndication Agent and as Collateral Agent pursuant to the Security Documents) to act as specified herein and in the other Credit Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, the Administrative Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder by or through its officers, directors, agents, employees or affiliates. 12.02 Nature of Duties. The Administrative Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the Security Documents. Neither the Administrative Agent nor any of its officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by the gross negligence or willful misconduct of the Administrative Agent. The duties of the Administrative Agent shall be mechanical and administrative in nature; the Administrative Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Bank or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein. 12.03 Lack of Reliance on the Administrative Agent. Independently and without reliance upon the Administrative Agent, each Bank and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its Subsidiaries in connection with the making and the continuance of the Loans and the participation in Letters of Credit and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Company and its Subsidiaries and, except as expressly provided in this Agreement, the Administrative Agent shall have no duty or responsibility, either initially or on a con- -119- 128 tinuing basis, to provide any Bank or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or the participation in the Letters of Credit or at any time or times thereafter. The Administrative Agent shall not be responsible to any Bank or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Company or its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of the Company or its Subsidiaries or the existence or possible existence of any Default or Event of Default. 12.04 Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Banks with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, the Administrative Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Required Banks; and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Bank and no holder of any Note shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Banks. 12.05 Reliance. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or facsimile message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that the Administrative Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by it. 12.06 Indemnification. To the extent the Administrative Agent is not reimbursed and indemnified by the Company the Banks will reimburse and indemnify the Administrative Agent, in proportion to their respective "percentages" as used in determining the Required Banks for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against -120- 129 or incurred by the Administrative Agent in performing its duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document; provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. 12.07 The Administrative Agent in Its Individual Capacity. With respect to its obligation to make Loans under this Agreement and to issue or participate in Letters of Credit, the Administrative Agent shall have the rights and powers specified herein for a "Bank" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Banks," "Required Banks," "holders of Notes" or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Company or any Affiliate of the Company as if it were not performing the duties specified herein, and may accept fees and other consideration from the Company or any Affiliate of the Company for services in connection with this Agreement and otherwise without having to account for the same to the Banks. 12.08 Holders. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 12.09 Resignation by the Administrative Agent. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior written notice to the Company and the Banks. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below. (b) Upon any such notice of resignation of the Administrative Agent, the Banks shall appoint a successor Administrative Agent hereunder or thereunder who shall -121- 130 be a commercial bank or trust company reasonably acceptable to the Company (it being understood and agreed that any Bank is deemed to be acceptable to the Company). (c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of the Company, shall then appoint a successor Administrative Agent who shall serve as the Administrative Agent hereunder or thereunder until such time, if any, as the Banks appoint a successor Administrative Agent as provided above. (d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 20th Business Day after the date such notice of resignation was given by the Administrative Agent, the Administrative Agent's resignation shall become effective and the Banks shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Banks appoint a successor Administrative Agent as provided above. 12.10 Documentation Agent. The Documentation Agent, in its capacity as such, shall not have any rights, duties or responsibilities pursuant to this Agreement or any of the other Credit Documents. Section 13. Miscellaneous. 13.01 Payment of Expenses; etc. The Company shall: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Administrative Agent (including, without limitation, the reasonable fees and disbursements of White & Case and of any local counsel) in connection with the preparation, execution and delivery of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein and any amendment, waiver or consent relating hereto or thereto, of the Administrative Agent (including, without limitation, the reasonable fees and disbursements of White & Case) in connection with its syndication efforts with respect to this Agreement and of the Administrative Agent and each of the Banks in connection with the enforcement of this Agreement and the other Credit Documents and the documents and instruments referred to herein and therein (including, without limitation, the reasonable fees and disbursements of counsel for the Administrative Agent and for each of the Banks); (ii) pay and hold each of the Banks harmless from and against any and all present and future stamp, excise and other similar taxes with respect to the foregoing matters and save each of the Banks harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Bank) -122- 131 to pay such taxes; and (iii) defend, protect, indemnify and hold harmless the Administrative Agent, the Documentation Agent and each Bank, and each of their respective officers, directors, employees, affiliates, representatives and agents (each an "Indemnitee" and, collectively called the "Indemnities") from and against any and all liabilities, obligations (including removal, remedial or corrective actions), losses, damages, (including foreseeable and unforeseeable consequential damages and punitive damages) penalties, claims, actions, judgments, suits, costs, expenses and disbursements incurred by, imposed on or assessed against any Indemnitee directly or indirectly based on, as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding or claim (whether or not any Indemnitee is a party thereto) related to the entering into and/or performance of this Agreement or any other Document or the use of any Letter of Credit or the proceeds of any Loan hereunder or the consummation of any transactions contemplated herein (including, without limitation, the Transaction) or in any other Document or the exercise of any of their rights or remedies provided herein or in the other Documents, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property owned or at any time operated by the Company or any of its Subsidiaries, the generation, storage, transportation, handling or disposal by or on behalf of the Company and its Subsidiaries of Hazardous Materials at any location, whether or not owned or operated by the Company or any of its Subsidiaries, the non-compliance of any Real Property at any time owned or operated by the Company or any of its Subsidiaries with federal, state and local laws, regulations, and ordinances (including applicable permits thereunder) applicable to such Real Property, or any Environmental Claim asserted against the Company, any of its Subsidiaries or any Real Property at any time owned or operated by the Company or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel and other consultants incurred in connection with any such investigation, litigation or other proceeding or claim (whether or not any Indemnitee is a party thereto) (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 13.02 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Company or any of its Subsidiaries or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Bank (including, without limitation, by branches and agencies of such Bank wherever located) -123- 132 to or for the credit or the account of each of the Company and its Subsidiaries against and on account of the Obligations and liabilities of such Person to such Bank under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations purchased by such Bank pursuant to Section 13.06(b), and all other claims of any nature or description arising out of or in connection with this Agreement or any other Credit Document, irrespective of whether or not such Bank shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 13.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered: if to the Company, at its address specified opposite its signature below; if to any Bank, at its address specified on Schedule XI attached hereto; and if to the Administrative Agent, at its Notice Office; or, as to the Company or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties hereto and, as to each Bank, at such other address as shall be designated by such Bank in a written notice to the Company and the Administrative Agent. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to the Administrative Agent shall not be effective until received by the Administrative Agent. 13.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, the Company may not assign or transfer any of its rights, obligations or interest hereunder or under any other Credit Document without the prior written consent of the Banks and, provided further, that although any Bank may transfer, assign or grant participations in its rights hereunder, such Bank shall remain a "Bank" for all purposes hereunder (and may not transfer or assign all or any portion of its Commitments hereunder except as provided in Section 13.04(b)) and the transferee, assignee or participant, as the case may be, shall not constitute a "Bank" hereunder and, provided further, that no Bank shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in which such participant is participating, or reduce the rate or extend the time of -124- 133 payment of interest or Fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory Commitment reduction or of a mandatory prepayment shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement or (iii) release all or substantially all of the Collateral under all of the Security Documents (except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by the Company hereunder shall be determined as if such Bank had not sold such participation. (b) Notwithstanding the foregoing, any Bank (or any Bank together with one or more other Banks) may (x) assign all or a portion of its Revolving Loan Commitment and related outstanding Obligations and/or its D Term Loan Commitment or outstanding Term Loans to one or more other Banks or to such assigning Bank's parent company and/or any affiliate of such Bank which is at least 50% owned by such Bank or its parent company or an Approved Fund or (y) assign all or if less than all, a portion equal to at least $5,000,000 in the aggregate for the assigning Bank of such Revolving Loan Commitment and related outstanding Obligations and/or D Term Loan Commitment or outstanding principal amount of Term Loans to one or more Eligible Transferee or Eligible Transferees, each of which assignees shall become a party to this Agreement as a Bank by execution of an assignment and assumption agreement substantially in the form of Exhibit O (appropriately completed), provided that, (i) at such time Schedule I shall be deemed modified to reflect the Commitments (and/or outstanding Loans, as the case may be) of such new Bank and of the existing Banks, (ii) new Notes will be issued at the Company's expense to such new Bank and to the assigning Bank upon the request of such new Bank or assigning Bank, such new Notes to be in conformity with the requirements of Section 1.05 to the extent needed to reflect the revised Commitments (and/or outstanding Loans, as the case may be), (iii) the consent of BTCo shall be required in connection with any assignment, (iv) the consent of the Company shall be required in connection with any assignment of Commitments to an assignee pursuant to clause (y) above (which consent shall not be unreasonably withheld), (v) the consent of each Issuing Bank shall be required in connection with any assignment of -125- 134 Revolving Loan Commitments and (vi) the Administrative Agent shall receive at the time of each such assignment, the payment of a non-refundable assignment fee of $3,500 and, provided further, that such transfer or assignment will not be effective until recorded by the Administrative Agent on the Register pursuant to Section 8.14 hereof. To the extent of any assignment pursuant to this Section 13.04(b), the assigning Bank shall be relieved of its obligations hereunder with respect to its assigned Commitments. At the time of each assignment pursuant to this Section 13.04(b) to a Person which is not already a Bank hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. federal income tax purposes, the respective assignee shall provide to the Company and the Administrative Agent, the appropriate Internal Revenue Service Forms (and, if applicable, a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). (c) Nothing in this Agreement shall prevent or prohibit any Bank from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. 13.05 No Waiver; Remedies Cumulative. No failure or delay on the part of the Administrative Agent or any Bank or any holder of any Note in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between the Company and the Administrative Agent or any Bank or the holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, powers and remedies herein or in any other Credit Document expressly provided are cumulative and not exclusive of any rights, powers or remedies which the Administrative Agent or any Bank or the holder of any Note would otherwise have. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or any Bank or the holder of any Note to any other or further action in any circumstances without notice or demand. 13.06 Payments Pro Rata. (a) The Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Company in respect of any Obligations hereunder, it shall distribute such payment to the Banks (other than any Bank that has consented in writing to waive its pro rata share of any such payment) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. -126- 135 (b) Each of the Banks agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise), which is applicable to the payment of the principal of, or interest on, the Loans, Unpaid Drawings or regularly accruing Fees, of a sum which with respect to the related sum or sums received by other Banks is in a greater proportion than the total of such Obligation then owed and due to such Bank bears to the total of such Obligation then owed and due to all of the Banks immediately prior to such receipt, then such Bank receiving such excess payment shall purchase for cash without recourse or warranty from the other Banks an interest in the Obligations of the Company to such Banks in such amount as shall result in a proportional participation by all the Banks in such amount; provided that if all or any portion of such excess amount is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 13.07 Calculations; Computations. (a) The financial statements to be furnished to the Banks pursuant hereto shall be made and prepared in accordance with generally accepted accounting principles in the United States consistently applied throughout the periods involved (except, in the case of the generally accepted accounting principles, as set forth in the notes thereto or as otherwise disclosed in writing by the Company to the Banks); provided that, except as otherwise specifically provided herein, all computations of Excess Cash Flow and all computations determining compliance with Section 9 shall utilize accounting principles and policies in conformity with those used to prepare the historical financial statements for the fiscal year ended September 27, 1996 delivered to the Banks pursuant to Section 7.05(a). References to a fiscal quarter ending in March, June, September or December or a fiscal year ending in September shall as appropriate be deemed to refer to the fiscal quarter and/or fiscal year, as applicable, ending in the first week of the next succeeding April, July, October or January if there is no fiscal quarter and/or fiscal year, as applicable, ending in the specified month. (b) All computations of interest and Fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or Fees are payable. -127- 136 13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS OTHERWISE PROVIDED IN THE MORTGAGES, BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEMS, INC. WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY, AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. -128- 137 (b) THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS IN NEW YORK REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY COURT OR JURISDICTION, INCLUDING WITHOUT LIMITATION THOSE REFERRED TO IN CLAUSE (A) ABOVE, IN RESPECT OF ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 13.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Company and the Administrative Agent. 13.10 Effectiveness. This Agreement shall become effective on the date (the "Restatement Effective Date") on which (i) each of the Company, the Required Banks (as defined in the Existing Credit Agreement and determined immediately before the occurrence of the Restatement Effective Date) and each New Bank shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Administrative Agent at its Notice Office or, in the case of the Required Banks and each New Bank, shall have given to the Administrative Agent telephonic (confirmed in writing), written or telex notice (actually received) at such office that the same has been signed and mailed to it and (ii) the conditions contained in Sections 5 and 6 are met to the satisfaction of the Administrative Agent and the Required Banks (determined immediately after giving effect to the Restatement Effective Date). Unless the Administrative Agent has received actual notice from any Bank that the conditions described in clause (ii) of the preceding sentence have not been met to its satisfaction, upon the satisfaction of the condition described in clause (i) of the immediately preceding sentence and upon the Administrative Agent's determination that the -129- 138 conditions described in clause (ii) of the immediately preceding sentence have been met and upon the payment of all amounts required to be paid on the Restatement Effective Date pursuant to Section 5.03, then the Restatement Effective Date shall be deemed to have occurred, regardless of any subsequent determination that one or more of the conditions thereto have not been met (although the occurrence of the Restatement Effective Date shall not release the Company from any liability for failure to satisfy one or more of the applicable conditions contained in Section 5 or 6). 13.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 13.12 Amendment or Waiver. (a) Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Company and the Required Banks, provided that no such change, waiver, discharge or termination shall, without the consent of each Bank (with Obligations being directly affected in the case of following clause (i)): (i) extend the final scheduled maturity of any Loan or Note or any portion thereof or extend the stated maturity of any Letter of Credit beyond the Revolving Loan Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon, or reduce the principal amount thereof (except to the extent repaid in cash), (ii) release all or substantially all of the Collateral under all of the Security Documents (except as expressly provided in the Credit Documents), (iii) amend, modify or waive any provision of this Section 13.12, (iv) reduce the percentage specified in the definition of Required Banks (it being understood that, with the consent of the Required Banks, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Banks on substantially the same basis as the extensions of the Term Loans and Revolving Loan Commitments are included on the Restatement Effective Date) or (v) consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement; provided further, that no such change, waiver, discharge or termination shall (I) increase the Commitments of any Bank over the amount thereof then in effect (it being understood that waivers or modifications of conditions precedent, covenants, any Default or Event of Default or of a mandatory Commitment reduction to the Total Commitment or of a mandatory prepayment shall not constitute an increase of the Commitment of any Bank, and that an increase in the available portion of any Commitment of any Bank shall not constitute an increase in the Commitment of such Bank), without the consent of such Bank, (II) without the consent of each Issuing Bank affected thereby, amend, modify or waive any provision of Section 2 or alter its rights or obligations with respect to Letters of Credit, (III) without -130- 139 the consent of the Agent, amend, modify or waive any provision of Section 12 or any other provision relating to the rights or obligations of the Agent, (IV) without the consent of the Collateral Agent, amend, modify or waive any provision relating to the rights or obligations of the Collateral Agent, (V) without the consent of the Required A Facility Banks (A) amend, modify or waive any of the required applications of any prepayments or repayments, as between the various Tranches of Term Loans, pursuant to Section 4.01 or Section 4.02(B)(a), (B) amend, modify or waive the requirements of Section 4.02(A)(d), (e), (f) or (g) or (C) amend, modify or waive any part of the definition of Required A Facility Banks in a manner adverse to the Banks with A Term Loans, (VI) without the consent of the Required B Facility Banks (A) amend, modify or waive any of the required applications of any prepayments or repayments, as between the various Tranches of Term Loans, pursuant to Section 4.01 or Section 4.02(B)(a), (B) amend, modify or waive the requirements of Section 4.02(A)(d), (e), (f) or (g) or (C) amend, modify or waive any part of the definition of Required B Facility Banks in a manner adverse to the Banks with B Term Loans, (VII) without the consent of the Required C Facility Banks (A) amend, modify or waive any of the required applications of any prepayments or repayments, as between the various Tranches of Term Loans, pursuant to Section 4.01 or Section 4.02(B)(a), (B) amend, modify or waive the requirements of Section 4.02(A)(d), (e), (f) or (g) or (C) amend, modify or waive any part of the definition of Required C Facility Banks in a manner adverse to the Banks with C Term Loans or (VIII) without the consent of the Required D Facility Banks (A) amend, modify or waive any of the required applications of any prepayments or repayments, as between the various Tranches of Term Loans, pursuant to Section 4.01 or Section 4.02(B)(a), (B) amend, modify or waive the requirements of Section 4.02(A)(d), (e), (f) or (g) or (C) amend, modify or waive any part of the definition of Required D Facility Banks in a manner adverse to the Banks with D Term Loans or D Term Loan Commitments; provided, however, that in any case the Required Banks may waive, in whole or in part, any such prepayment, repayment or commitment reduction, except pursuant to Section 4.02(A)(d), (e) or (f), so long as the application, as amongst the various Tranches, of any such prepayment, repayment or commitment reduction which is still required to be made is not altered. (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by clauses (i) through (v), inclusive, of the first proviso to Section 13.12(a), the consent of the Required Banks is obtained but the consent of one or more of such other Banks whose consent is required is not obtained, then the Company shall have the right, so long as all non-consenting Banks whose individual consent is required are treated as described in either clauses (A) or (B) below, to either (A) replace each such non-consenting Bank or Banks (or, at the option of the Company if the respective Bank's consent is required -131- 140 with respect to less than all Tranches of Loans, to replace only the respective Tranche or Tranches of Loans of the respective non-consenting Bank which gave rise to the need to obtain such Bank's individual consent) with one or more Replacement Banks pursuant to Section 1.12 so long as at the time of such replacement, each such Replacement Bank consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Bank's Revolving Loan Commitment (if such Bank's consent is required as a result of its Revolving Loan Commitment) and/or repay in full its outstanding Loans, in accordance with Sections 3.02(b) and/or 4.01(b), provided that, unless the Commitments that are terminated, and Loans that are repaid, pursuant to the preceding clause (B) are immediately replaced in full at such time through the addition of new Banks or the increase of the Commitments and/or outstanding Loans of existing Banks (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Banks (determined before giving effect to the proposed action) shall specifically consent thereto and, provided further, that in any event the Company shall not have the right to replace a Bank, terminate its Revolving Loan Commitment or repay its Loans solely as a result of the exercise of such Bank's rights (and the withholding of any required consent by such Bank) pursuant to the second proviso to Section 13.12(a). (c) Notwithstanding anything to the contrary contained above in this Section 13.12, the Collateral Agent may enter into amendments to the Security Documents for the purpose of adding Subsidiaries of the Company as parties thereto and Additional Security Documents and guarantees may be entered into to satisfy the requirements of Section 8.13, in each case without the consent of the Required Banks. 13.13 Survival. All indemnities set forth herein including, without limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 13.01 shall survive the execution, delivery and termination of this Agreement and the Notes and the making and repayment of the Loans. 13.14 Domicile of Loans. Each Bank may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Bank. 13.15 Confidentiality. Each Bank agrees that it will use its reasonable best efforts not to disclose without the prior consent of the Company (other than to its employees, auditors or counsel or to another Bank if the Bank or such Bank's holding or parent company in its sole discretion determines that any such party should have access to such information) any information with respect to the Company or any of its Subsidiaries which is furnished pursuant to this Agreement and which is designated by the Company to the Banks in writing as confidential, provided that any Bank may -132- 141 disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Bank or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Bank and (e) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of any of the Notes or Commitments or any interest therein by such Bank, provided that such prospective transferee agrees to maintain the confidentiality contained in this Section. 13.16 Addition of New Banks; Original Notes. (a) On and as of the occurrence of the Restatement Effective Date, in accordance with Section 13.10 hereof, each New Bank shall become a "Bank" under, and for all purposes of, this Agreement and the other Credit Documents. (b) On the Restatement Effective Date, immediately after giving effect thereto, all outstanding Revolving Notes (as defined in the Existing Credit Agreement) issued by the Company to the Existing Banks under the Existing Credit Agreement shall be deemed cancelled. 13.17 Post Closing Actions. Notwithstanding anything to the contrary contained in this Agreement or the other Credit Documents, the parties hereto acknowledge and agree that: (a) Real Estate Appraisals. The Company will deliver, or cause to be delivered, within five Business Days after the Restatement Effective Date to the Administrative Agent real estate appraisals, in form and substance satisfactory to the Administrative Agent and the Required Banks, in connection with the Existing Mortgaged Properties from Cushman & Wakefield, Inc., which appraisals shall comply with the requirements of Section 5.11(a)(iii). (b) "In-Use" Appraisals. The Company will deliver, or cause to be delivered, within five Business Days after the Restatement Effective Date to the Administrative Agent an "in-use" appraisal of the Company's Manufacturing Facilities from Cushman & Wakefield, Inc., in form, scope and substance satisfactory to the Administrative Agent and the Required Banks, which "in-use" appraisal shall comply with the requirements of Section 5.15(i). -133- 142 All conditions precedent and representations contained in this Agreement and the other Credit Documents shall be deemed modified to the extent necessary to effect the foregoing (and to permit the taking of the actions described above within the time periods required above, rather than as elsewhere provided in the Credit Documents); provided, that (x) to the extent any representation and warranty would not be true because the foregoing actions were not taken on the Restatement Effective Date, the respective representation and warranty shall be required to be true and correct in all material respects at the time the respective action is taken (or was required to be taken) in accordance with the foregoing provisions of Section 13.17 and (y) all representations and warranties relating to the Security Documents shall be required to be true immediately after the actions required to be taken by Section 13.17 have been taken (or were required to be taken). The acceptance of the benefits of each Credit Event shall constitute a representation, warranty and covenant by the Company to each of the Banks that the actions required pursuant to this Section 13.17 will be taken within the relevant time periods referred to in this Section 13.17 and that, at such time, all representations and warranties contained in this Agreement and the other Credit Documents shall then be true and correct without any modification pursuant to this Section 13.17. -134- 143 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. 1000 Italian Way AMERICAN ITALIAN PASTA Excelsior Springs, Missouri 64024 COMPANY Telephone No.: (816) 630-6400 Telecopier No.: (816) 630-6416 By /s/ Timothy S. Webster ------------------------- Attention: David Watson Name: Timothy S. Webster Title: President BANKERS TRUST COMPANY, Individually, as Administrative Agent and as Syndication Agent By /s/ Mary Jo Jolly ----------------------- Name: Mary Jo Jolly Title: Assistant Vice President 144 MORGAN STANLEY SENIOR FUNDING, INC., Individually and as Documentation Agent By /s/ Michael Hart ----------------------- Name: Michael Hart Title: Vice President BANK OF SCOTLAND By /s/ Annie Chin Tat -------------------------- Name: Annie Chin Tat Title: Assistant Vice President BANK ONE, WISCONSIN By /s/ Cindy L. Wavrunek -------------------------- Name: Cindy L. Wavrunek Title: Vice President THE ING SENIOR SECURED HIGH INCOME FUND, L.P. By: ING CAPITAL ADVISORS, INC. By /s/ Kathleen Lenarcie ----------------------- Name: Kathleen Lenarcie Title: Vice President and Portfolio Manager 145 MERCANTILE BANK By /s/ Roger A. Lumley --------------------- Name: Roger A. Lumley Title: Senior Vice President MERRILL LYNCH PRIME RATE PORTFOLIO By: MERRILL LYNCH ASSET MANAGEMENT, L.P., as investment advisor By /s/ Giles Marchand ---------------------- Name: Giles Marchand Title: Authorized Signatory MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By /s/ Giles Marchand ---------------------- Name: Giles Marchand Title: Authorized Signatory 146 MERRILL LYNCH SENIOR HIGH INCOME PORTFOLIO By /S/ Giles Marchand -------------------- Name: Giles Marchand Title: Authorized Signatory NATIONSBANK, N.A. (Mid-West) By /s/ Thomas J. Butkus --------------------- Name: Thomas J. Butkus Title: Vice President PARIBAS CAPITAL FUNDING LLC By /s/ Eric Green ---------------- Name: Eric Green Title: Director 147 PRIME INCOME TRUST By /s/ Rafael Scolari --------------------- Name: Rafael Scolari Title: V.P. Portfolio Manager PROTECTIVE ASSET MANAGEMENT, L.L.C. By /s/ James Dondero --------------------- Name: James Dondero Title: President UMB BANK, N.A. By /s/ David A. Proffit ---------------------- Name: David A. Proffit Title: Senior Vice President VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By /s/ Jeffrey W. Maillet ------------------------ Name: Jeffrey W. Maillet Title: Senior Vice President and Director EX-10.4 5 WAREHOUSE LEASE 1 EXHIBIT 10.4 WAREHOUSE LEASE Agreement of Warehouse Lease made the 23rd day of May, 1995, between LANTER COMPANY, a Delaware corporation, having its principal office at 1600 Collinsville Avenue, Madison, Illinois 62060 (hereinafter referred to as "Lessor") and AMERICAN ITALIAN PASTA COMPANY, (hereinafter referred to as "Lessee".) WITNESSETH Lessee is the fee owner of the land described in EXHIBIT A attached hereto and by this reference made a part hereof (the "Land"). Lessor and Lessee do hereby enter into this Lease on the understanding and agreement that Lessee shall transfer the Land to Lessor subsequent to the execution of this Lease. The Lessor shall, and does hereby, demise and lease to the Lessee a building (the "Building"), consisting of 80,834 square feet of warehouse space, together with the Land on which the Building is located, together with all rights, alleys, rights of way, easements and appurtenances belonging or appertaining to the Building or the Land (the Building, Land, and all other improvements, rights, easements and appurtenances relating thereto being hereinafter referred to collectively as the "Premises"), upon the following terms, covenants and conditions. The Building shall be constructed by Lanter, at Lanter's sole cost and expense, in accordance with the Plans and Specifications dated March 3, 1995, prepared by ASI Incorporated for the "New Distribution Center for the Lanter Company in Columbia, South Carolina," (the "Plans and Specifications"). The Building, when fully racked, shall have a net storage capacity of approximately 10,000 pallet positions and a gross storage capacity of approximately 13,300 pallet positions based on a seven-high stacking configuration in a double-deep racking system. 1. TERM - The initial term of this Lease ("Initial Term") shall be for 15 years commencing on the date of actual occupancy of the Premises by the Lessee, or on the date which is thirty (30) days following the date of substantial completion of the Building, whichever is first to occur (hereinafter referred to as the "Commencement Date"). Lessor will use its best efforts to have the Building substantially completed by June 19, 1995. Construction of the Premises shall not be considered substantially complete until (i) it is substantially completed in every respect in accordance with the Plans and Specifications, (ii) a certificate of occupancy for the Building has been issued and delivered to Lessee, and (iii) the Building is in such condition to allow proper storage of Lessee's product therein. 2. RIGHT OF EXTENSION - Lessee is hereby granted three (3) separate options to extend the term of this Lease, each option period to be for five (5) years. Except as to Fixed Rental (hereinafter defined), and as otherwise provided herein, Lessee's occupancy of the Premises during such period(s) shall be on and subject to the same terms and conditions as the Initial Term hereof. This Lease shall automatically renew for each of said extension periods unless Lessee gives written notice to Lessor of its intention not to extend this Lease at least six (6) months prior to the end of the then current term. 2 3. RENT - (a) Lessee hereby covenants and agrees to pay to Lessor at its office or such other place as Lessor may from time to time designate, as rent for the Premises during the term of this Lease, a rental as set forth below, payable monthly in advance on the first day of each and every month, commencing on the Commencement Date. If the Commencement Date hereunder is other than the first of a month, rental for the partial month shall be prorated on a daily basis. (b) INITIAL TERM. Rent for the Initial Term shall consist of: 1. FIXED RENTAL = $548,000.000 per year* for the Initial Term, Payable $45,666.66 per month *This rental amount assumes that the Building has been fully racked to accommodate a gross storage capacity of 13,300 pallet positions, but that Lessee does not need all of said pallet positions for storage of its pasta and other food products (sometimes referred to herein as Lessee's "product"). At such time as Lessor and Lessee agree in writing that the gross pallet positions needed by Lessee for the storage of Lessee's product exceeds 10,000, Fixed Rental shall be increased to, and Lessee shall pay Fixed Rental in the amount of $553,000 per year for the Initial Term, which amount shall be payable in monthly installments of $46,083.33. In the event that Lessor and Lessee shall enter into a materials handling, operating and service agreement pursuant to which Lessor operates the Premises and provides services related to the storing, packing, loading, and shipping of Lessee's product (sometimes referred to herein as the "Materials Handling Service Agreement"), then Lessor shall give Lessee written notice at such time that more than 10,000 gross pallet positions are needed for the storage of Lessee's product. 2. VARIABLE RENTAL: Subject to SECTION 11 herein, Variable Rental shall be equal to the sum of real estate taxes and assessments levied, assessed or imposed upon the Premises from and after the Commencement Date, and insurance and maintenance expenses incurred by Lessor for the Premises from and after the Commencement Date and during the term of this Lease (referred to collectively as the "Variable Rental Elements"). Utilities are to be paid directly by Lessee as hereinafter provided. Maintenance expenses shall consist of all expenses necessary to maintain all portions of the Premises in good repair, including the racks, the heating and cooling system, docks and accessories, security system, fire prevention equipment, routine housekeeping, rodent control, upkeep, maintenance and repair of grounds, driveways, and parking areas and any expenses necessary to maintain the compatibility of the Premises with the storage of food products. Notwithstanding the foregoing, in no event shall the Variable Rental Elements 3 include, or Lessee be liable for or be required to pay, any of the following: (i) repairs that are attributable to any latent defects (latent defects as used herein shall mean a defect which is a departure from the Plans and Specifications not apparent upon an ordinary and reasonable inspection by a professional engineer qualified to make such inspection); (ii) costs attributable to any construction defects or to correct any work not in compliance with the Plans and Specifications; (iii) costs covered by any warranty or guaranty; (iv) costs related to casualties or liabilities which are reimbursed by insurance; (v) costs attributable to Lessor's negligence; (vi) debt service; (vii) the costs of capital improvements to the Premises, unless Lessee has approved such costs in advance in writing; or (viii) maintenance and repair costs in excess of $2,500, unless Lessee has approved such costs in advance in writing. Subject to SECTION 6 hereof, Lessor shall pay all real estate taxes and insurance premiums for the Premises and forward copies of said bills and evidence of payment thereof to Lessee. Lessee shall reimburse Lessor for the amounts shown as paid on said bills within 15 days of Lessee's receipt of said bills. Lessor will provide an itemized bill of its maintenance expenses for the Premises to Lessee on a monthly basis. Lessee shall reimburse Lessor for said maintenance expenses with 15 days of Lessee's receipt of said statements. (c) EXTENSION TERM. Rent for any extension term of this Lease shall consist of (i) Fixed Rental in an amount to be negotiated in good faith by Lessor and Lessee with the understanding and agreement that the Fixed Rental for any extension term shall be significantly lower than the Fixed Rental for the Initial Term; and (ii) Variable Rental as set forth in (b) above. 4. OPTION TO PURCHASE THE LEASED PREMISES - (a) EXERCISE OF OPTION. Lessee shall have the right and option to purchase the Premises at any time during the Initial Term or any extension term of this Lease only upon the terms and conditions stated below. Lessee shall exercise its aforesaid option by giving Lessor written notice of Lessee's election to exercise its option and specifying the date, time and place of closing, which date (the "Closing Date") shall be neither earlier than thirty (30) days nor later than sixty (60) days after the notice is given. (b) QUALITY OF TITLE. If said notice of election to purchase be given as aforesaid, Lessor shall and covenants and agrees to sell and convey title to the Premises to Lessee (said title to be subject to the same exceptions, easements and other matters to which title was subject at the time title was conveyed by Lessee to Lessor, except as hereinafter provided) on the Closing Date free and clear of all liens and encumbrances whatsoever except (i) those described on EXHIBIT B attached hereto, (ii) those to which the Leased Premises became subject with Lessee's written consent, or which resulted from any failure of Lessee to perform any of its agreements or obligations under this Lease, and (iii) taxes and assessments, general and special, for the then 3 4 current year, if any (the "Permitted Encumbrances"). Lessee's rights under this SECTION 4 shall be prior to the lien of any mortgage (and collateral mortgage documents) on the Premises, so long as, in connection with closing, Lessee agrees that all or a designated portion of the Purchase Price be paid to such mortgagee, as specified in writing by Lessor and such mortagee. (c) OPTION TERMS AND PURCHASE PRICE. Lessee shall have the right to purchase the Premises only upon the conditions set forth in this Section 4 and for the price and sums (the "Purchase Price") as follows: 1. If (i) the stock ownership of Lessor by the Lanter Family, as hereafter defined, falls below 50% of the total voting power of all stock entitled to vote; (ii) Lessor sells, transfers or conveys the Premises to a person or entity other than Lessee, a member of the Lanter Family or an entity controlled by the Lanter Family; or (iii) Lessor is unable or refuses to finance or construct an expansion of the Premises, as requested by Lessee pursuant to SECTION 32 hereof (unless Lessor's refusal is based upon (x) a material adverse change in the financial condition of Lessee or (y) the failure of Lessor and Lessee to reach agreement, upon good faith negotiations, as to the terms and conditions of the expansion), then at Lessee's option, Lessee may purchase the Premises from the first anniversary date of the Commencement Date of this Lease for the price set forth below based upon the Closing Date of the purchase of the Premises: (i) From the first anniversary date of the Commencement Date of this Lease but before the second anniversary date of the Commencement Date of this Lease the purchase price shall be $3,855,000.00 (ii) From the second anniversary date but before the third anniversary date $3,748,000.00 (iii) From the third anniversary date but before the fourth anniversary date $3,629,000.00 (iv) From the fourth anniversary date but before the fifth anniversary date $3,495,000.00 (v) From the fifth anniversary date but before the sixth anniversary date $3,347,000.00 (vi) From the sixth anniversary date but before the seventh anniversary date $3,181,000.00 (vii) From the seventh anniversary date but before the eighth anniversary date $2,997,000.00 4 5 (viii) From the eighth anniversary date but before the ninth anniversary date $2,790,000.00. (ix) From the ninth anniversary date but before the tenth anniversary date $2,560,000.00. (x) From the tenth anniversary date but before the eleventh anniversary date $2,304,000.00. (xi) From the eleventh anniversary date but before the twelfth anniversary date $2,017,000.00. (xii) From the twelfth anniversary date but before the thirteenth anniversary date $1,698,000.00. (xiii) From the thirteenth anniversary date but before the fourteenth anniversary date $1,341,000.00. (xiv) From the fourteenth anniversary date but before the fifteenth date $943,000.00. (xv) From the fifteenth anniversary date of the Commencement Date of this Lease, if Lessee has exercised its option to extend the term of this Lease as provided in SECTION 2 hereof, but before the Lease has terminated, the purchase price shall be $800,000.00. The Lanter Family is defined to be Wayne Lanter, Steve Lanter, Jeff Lanter, David Lanter (collectively the "Lanters") and any spouse or child of the Lanters, and any trust whose primary beneficiary is any of the aforementioned persons, and the estate of any of the aforementioned persons during its administration. 2. In addition, Lessee may purchase the Premises at any time from and after the fifth anniversary date of the Commencement Date of this Lease for the price determined below based upon the Closing Date of the purchase of the Premises. (i) From the fifth anniversary date of the Commencement Date of this Lease but before the sixth anniversary date of the Commencement Date of this Lease the purchase price shall be $3,847,000.00. 5 6 (ii) From the sixth anniversary date of the Commencement Date of this Lease but before the seventh anniversary date of the Commencement Date of this Lease the purchase price shall be $3,681,000.00. (iii) From the seventh anniversary date of the Commencement Date of this Lease but before the eighth anniversary date of the Commencement Date of this Lease the purchase price shall be $3,497,000.00. (iv) From the eighth anniversary date of the Commencement Date of this Lease but before the ninth anniversary date of the Commencement Date of this Lease the purchase price shall be $3,290,000.00. (v) From the ninth anniversary date of the Commencement Date of this Lease but before the tenth anniversary date of the Commencement Date of this Lease the purchase price shall be $3,060,000.00. (vi) From the tenth anniversary date of the Commencement Date of this Lease but before the eleventh anniversary date of the Commencement Date of this Lease the purchase price shall be $2,804,000.00. (vii) From the eleventh anniversary date of the Commencement Date of this Lease but before the the twelfth anniversary date of the Commencement Date of this Lease the purchase price shall be $2,517,000.00. (viii) From the twelfth anniversary date of the Commencement Date of this Lease but before the thirteenth anniversary date of the Commencement Date of this Lease the purchase price shall be $2,198,000.00. (ix) From the thirteenth anniversary date of the Commencement Date of this Lease but before the fourteenth anniversary date of the Commencement Date of this Lease the purchase price shall be $1,841,000.00. 6 7 (x) From the fourteenth anniversary date of the Commencement Date of this Lease but before the fifteenth anniversary date of the Commencement Date of this Lease the purchase price shall be $1,443,000.00. (xi) From the fifteenth anniversary date of the Commencement Date of this Lease if Lessee has exercised its option to extend the term of this Lease as provided in SECTION 2 hereof but before the Lease has terminated, the purchase price shall be $1,000,000.00. Lessee shall also pay any sums that are, pursuant to any provisions of this Lease, due and owing from Lessee to Lessor on the Closing Date. The Purchase Price shall be paid in cash or certified check on the Closing Date unless otherwise agreed to by the parties. Nothing in this SECTION 4 shall release or discharge Lessee from its duty or obligation under this Lease to make any payment of any rent or other sums which, in accordance with the terms of this Lease, become due and payable prior to the Closing Date or its duty and obligation to fully perform and observe all covenants and conditions herein stated to be performed and observed by Lessee prior to the Closing Date. (d) TITLE POLICY. Lessor shall deliver to Lessee, at Lessor's expense, at or prior to the Closing Date, a title policy in the amount of the total Purchase Price. The policy shall be issued by a nationally recognized title insurance company. The title policy shall insure merchantable fee simple title in Lessee, subject only to the Permitted Encumbrances and shall include such reasonable endorsements as may be requested by Tenant. (e) At or before the Closing Date, Lessor shall deliver to Lessee the following: (i) an affidavit in form and substance acceptable to Lessee that Lessor is not a "foreign person" within the meaning of Section 1445(e)(3) of the Internal Revenue Code of 1986, as amended; (ii) a closing statement in form and content acceptable to Lessor and Lessee; (iii) a warranty deed, properly executed and conveying the Premises to Lessee free and clear of all liens and encumbrances whatsoever except for the Permitted Encumbrances; (iv) a Bill of Sale duly executed by Lessor conveying to Lessee title to any personal property, if any, to be conveyed with the Premises, which personal property shall be free and clear of any liens and encumbrances with full warranties of title; and 7 8 (v) any other documents and instruments, or agreements as may be required in futherance of the purchase of the Premises. (f) On the Closing Date and upon delivery of the above documents and instruments and satisfaction of any and all other conditions herein set forth, Lessee shall pay the full purchase price for the Premises to Lessor, whereupon, this Lease shall, ipso facto, terminate. (g) Except as otherwise provided herein, closing costs shall be apportioned between Lessor and Lessee as is customary where the Premises are located. (h) In addition, Lessor shall pay the sales, transfer and documentary taxes and conveyance fees, if any, that might become due because of the transfer of the Premises. (i) If for any reason whatsoever the purchase of the Premises by Lessee pursuant to valid notice of election to purchase given as aforesaid is not effected on the Closing Date, this Lease shall be and remain in full force and effect according to its terms the same as though no notice of election to purchase had been given. (j) The right of Lessee to exercise an option to purchase the Premises under the provisions of this Section shall, at Lessee's option, remain unimpaired notwithstanding any condemnation of title to, or the damage or destruction by fire or other casualty of, all or any part of the Leased Premises, and the provisions of SECTIONS 15 and 16 shall be construed in the light of the effect of said option exercised by Lessee. If Lessee shall exercise its said option and pay the full Purchase Price, then the condemnation awards or insurance proceeds received by Lessor, whether received prior to or after closing, shall belong and be paid to Lessee notwithstanding any other provision in SECTIONS 15 or 16. Notwithstanding the foregoing, if after exercise of this option but prior to the Closing Date any of the Premises are destroyed or substantially damaged by fire or any other cause, or the Premises or part thereof is taken by eminent domain (or is the subject of a pending or contemplated taking which has not been consummated). Lessee shall also have the right to cancel this option by written notice. If this option is canceled, this Lease shall be and remain in full force and effect according to its terms the same as though no election to purchase had been exercised. 5. FIRST MONTH'S RENT AND DEPOSIT - Lessee shall deposit upon execution of this Lease $45,666.66 with Lessor as security for the payment of rent and the compliance by Lessee with other terms of this Lease. This deposit shall be applied to the first month's Fixed Rental under this Lease. 6. TAXES - Promptly upon receipt and prior to payment thereof, Lessor shall provide a copy to Lessee of all bills for real estate taxes and assessments levied, assessed or imposed upon the Premises during the term of this Lease. Lessor agrees that Lessee shall have the right, in Lessee's or Lessor's name, but at Lessee's sole cost and expense, to contest the amount or validity of any tax or assessment by appropriate proceedings, timely instituted, provided that (a) Lessee gives 8 9 Lessor written notice of Lessee's intention to do so at least twenty (20) days prior to the delinquency thereof and (b) Lessee diligently prosecutes any such contest, at all times effectively stays or prevents any official or judicial sale of the Premises, under execution or otherwise, pays any final judgment enforcing any tax or assessment so contested, and promptly procures and records satisfaction thereof. Lessor shall pay all real estate taxes and assessments unless Lessee gives written notice to Lessor as set forth above and notifies Lessor that payment thereof, or payment thereof under protest, would operate as a bar to such contest or interfere materially with the prosecution thereof, in which event Lessor shall, upon request by Lessee, postpone or defer payment of such tax or assessment if (i) neither the Premises nor any portion thereof would, by reason of such postponement or deferment, be in danger of being forfeited or lost, and (ii) Lessee shall have deposited with Lessor cash, a certificate of deposit payable to Lessor, bond or other security reasonably acceptable to Lessor in the amount of the tax or assessment so contested and unpaid. Lessor shall, if requested by Lessee, cooperate with Lessee in any such proceedings; provided, however, that Lessor shall not be liable for any expenses whatsoever in connection therewith. 7. SHORT FORM LEASE - This Lease shall not be recorded, but the parties agree to execute a Short Form Lease setting forth the above option to purchase, substantially in the form attached hereto as EXHIBIT C. 8. UTILITIES - Lessee agrees to promptly pay all electric, gas, water and sewer services and other utilities used or consumed on the Premises. 9. COMPATIBILITY OF PREMISES - Lessor understands that the Premises must be compatible with the storage of food products, as specified on EXHIBIT D attached hereto and by this reference made a part hereof, and the Premises will be so maintained. The expenses for such maintenance shall be included in the Variable Rental Elements. 10. INSURANCE (a) Property (i) Lessor shall throughout the life of this Lease, keep the Premises and all parts thereof constantly insured in an amount equal to the full replacement value thereof, except for land and such parts as, in the opinion of Lessor and Lessee, are not properly subject to insurance, in such insurance company or companies authorized to do business in the State of South Carolina as may be approved by Lessee. The form of the policy or policies and the risks covered thereby, shall be as from time to time reasonably directed by Lessee, and if no form is prescribed by Lessee, such insurance policy shall be "all-risk" extended coverage insurance. The term "full replacement value," as used herein, shall mean the full actual replacement cost. Concurrently with the execution of this Lease and thereafter not less than thirty (30) days prior to the expiration date of the expiring policy(ies) Lessor shall deliver to Lessee a copy or certificate of the policy provided for in this Section. 9 10 (ii) Lessor shall also provide a standard form Warehouseman's Legal Liability Insurance in the event that a Materials Handling Service Agreement, is entered into by and between Lessor and Lessee. (iii) Lessee shall provide insurance covering Lessee's inventory and personal property for its full replacement value. Lessor shall not provide insurance protection for Lessee's personal property and inventory, except Warehouseman's Legal Liability Insurance under the condition stated in subparagraph (ii) above. (b) INDEMNIFICATION - LIABILITY INSURANCE (i) Lessor shall not be liable to Lessee for any loss or damage to Lessee or to any other person or to the property of Lessee or of any other person except to the extent that such loss or damage shall be caused by the intentionally tortious or negligent act of Lessor, its agents, servants or employees. Subject to SECTION 10(C) of this Lease, Lessee shall and does hereby agree to indemnify and save harmless Lessor, its successors or assigns, from all claims and demands of every kind (unless arising out of or resulting from the negligent or intentional act or omission of Lessor), that may be brought against Lessor, its successors or assigns or any of them for or on account of any damage, loss or injury to persons or property in or about the Premises or the Building and its appurtenances, including damage to the Premises, (i) arising from or out of Lessee's use or occupancy thereof, or (ii) occasioned wholly or in part by any act or omission of Lessee, its agents, servants, contractors, employees or invitees, and from any and all costs and expenses, reasonable counsel fees and other charges which may be imposed upon Lessor, its successors and assigns, or which Lessor, its successor or assigns may incur in consequence thereof. Subject to SECTION 10(C) of this Lease, Lessor shall and does agree to indemnify and save harmless Lessee, its successors or assigns, from all claims and demands of every kind, that may be brought against Lessee, its successors or assigns or any of them, for or on account of any damage, loss or injury to persons or property in or about the Premises arising out of the negligent or intentional act or omission of Lessor, its agent, servants, contractors, employees or invitees, and from any and all costs and expenses, reasonable counsel fees and other charges which may be imposed upon Lessee, its successors and assigns, or which Lessee, its successors or assigns may incur in consequences thereof. The provisions of this SUBSECTION 10(B) shall survive the termination of this Lease. (ii) Lessee covenants and agrees that Lessee will, throughout the term of this Lease, carry and pay for comprehensive commercial general liability with contractual liability insurance coverage with a company reasonably satisfactory to Lessor, with a minimum limit of $3,000,000.00 combined single limit per occurrence, and will furnish Lessor with an original signed counterpart of the certificate evidencing such coverage. All insurance maintained by Lessee under this Lease shall name Lessor and/or Lessor's designee as additional insureds, and shall also contain a provision stating that such policy or policies shall not be canceled or materially altered except after 30 days' prior written notice to Lessor, and if applicable, Lessor's designee. If at any time Lessee does not comply with the covenants made in this subsection, in addition to any 10 11 other remedies to which Lessor may be entitled, Lessor may, at Lessor's option, cause insurance as aforesaid to be issued, and Lessee agrees to pay the premium for such insurance within 10 days of Lessor's written demand, together with 15% of such premium for reimbursement to Lessor for Lessor's ancillary administrative expenses related thereto. (c) SUBROGATION - Each party (the "Releasing Party") hereby releases the other party (the "Released Party") from any and all liability or responsibility (to the Releasing Party by way of subrogation or otherwise) which the Released Party would, but for this Section 10(c) have had to the Releasing Party during the term of this Lease, resulting from the occurrence of any accident or occurrence or casualty (i) which is or would be covered by a fire and extended coverage policy (with vandalism and malicious mischief endorsement attached) (irrespective of whether such coverage is being carried by the Releasing Party), or (ii) covered by any other casualty or property damage insurance being carried by the Releasing Party at the time of such occurrence, even if such casualty resulted in whole or in part from any act or neglect of the Released Party, its partners, officers, agents or employees; provided, however, that the releases herein contained shall not apply to any loss or damage occasioned by the intentionally tortious act of the Released Party. Each Party hereto shall obtain a waiver from any insurance carrier with which it carries insurance covering the Premises or the contents thereof, releasing its subrogation rights against the other party. 11. REPAIRS, MAINTENANCE, SECURITY, HOUSEKEEPING, SANITATION - In the event that a Materials Handling Service Agreement is entered into by and between Lessor and Lessee, Lessor shall maintain all portions of the Premises in good repair and shall be responsible for all repairs to racks, heating, docks and accessories, including security system and fire prevention equipment. Lessor will also be responsible for and shall conduct throughout the term hereof: (a) routine housekeeping operations to keep the Premises free from dirt and debris and (b) insect and rodent control including trapping not only in the storage area but also the dock area and building perimeter. Should said Materials Handling Service Agreement not be entered into as hereinabove provided, or if entered into, be terminated prior to the expiration of the term of this Lease, Lessee shall assume responsibility subject to SECTION 10(C) hereof, for all maintenance, security, housekeeping, and sanitation referred to in this Lease including this SECTION 11 and SECTIONs 3 and 9, herein, and maintenance costs shall be removed as a Variable Rental Element from the calculation of Variable Rental. In the event that Lessee assumes responsibility for the maintenance of the Building, it shall not be responsible for the cost or repair of latent defects (as defined in SECTION 3(B)), construction defects, costs attributable to correct any work not in compliance with the Plans and Specifications, or costs attributable to Lessor's negligence, and such repairs shall be made by Lessor at its sole cost and expense. In addition, Lessee, for purposes of its maintenance obligations hereunder, shall have the benefit of all warranties and guarantees which Lessor may have upon construction of the Building, to the extent said warranties and guarantees are assignable, and Lessor shall assign to Lessee all of said warranties and guarantees, to the extent assignable. 11 12 12. DEFAULT A. EVENTS OF DEFAULT - The following events shall be deemed to be events of default by Lessee under this Lease: (1) Lessee shall fail to pay any installment of the rent herein reserved when due, or any other payment or reimbursement to Lessor required herein when due, and such failure shall continue for a period of ten (10) days after written notice thereof to Lessee. (2) Lessee shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors. (3) Lessee shall file a petition under any section or chapter of the National Bankruptcy Code, as amended, or under any similar law or statute of the United States or any State thereof; or an order for relief shall be entered against Lessee in any proceedings filed against Lessee thereunder. (4) A receiver or trustee shall be appointed for all or substantially all of the assets of Lessee. (5) Lessee shall fail to discharge any lien placed upon the Premises arising from a debt asserted against Lessee within twenty (20) days after any such lien or encumbrance is filed against the Premises, provided, however, the notwithstanding the foregoing, Lessee shall have the right to contest any mechanics' or other similar lien if it notifies Lessor in writing of its intention to do so, posts a bond with surety sufficient to satisfy any and all mechanics' liens and similar liens and all costs associated therewith, it diligently prosecutes such protest, and at all times affectively stays or prevents any official or judicial sale of the Premises, or any part thereof or interest therein, and pays or otherwise satisfies any final judgment adjudging or enforcing such contested lien claim and thereafter promptly procures record release or satisfaction thereof. (6) Lessee shall fail to comply with any term, provision or covenant of this Lease other than the foregoing in this SECTION 12 and shall not cure such failure within thirty (30) days after written notice thereof to Lessee (or such longer period as required to cure the default, if Lessee is diligently pursuing the cure of said default). B. REMEDIES (1) Upon the occurrence of any of such events of default described in SECTION 12 hereof, Lessor shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever. 12 13 (a) Terminate this Lease, in which event Lessee shall immediately surrender the Premises to Lessor, and if Lessee fails so to do, Lessor may, without prejudice to any other remedy which it may have for possession or arrearage in rent, enter upon and take possession of the Premises and expel or remove Lessee or any other person who may be occupying the Premises or any part thereof, by force if necessary, without being liable for prosecution or any claim of damages therefor. (b) Enter upon and take possession of the Premises and expel or remove Lessee and any other person who may be occupying such Premises or any part thereof, without terminating this Lease and without being liable for prosecution or any claim for damages therefor, and relet the premises and receive the rent therefor. (c) Enter upon the Premises, without terminating this Lease and without being liable for prosecution or any claim for damages therefor, and do whatever Lessee is obligated to do under the terms of this Lease; and Lessee agrees to reimburse Lessor on demand for any expenses which Lessor may incur in thus effecting compliance with Lessee's obligations under this Lease, and Lessee further agrees that Lessor shall not be liable for any damages resulting to the Lessee from such action, whether caused by the negligence of Lessor or otherwise. (d) Alter all locks and other security devices at the Premises without terminating this Lease. In the event Lessee fails to pay any installment of rent hereunder after written notice to Lessee and within the cure period provided, to help defray the additional cost to Lessor for processing such late payments Lessee shall pay to Lessor on demand a late charge in an amount equal to five percent (5%) of such installment; and the failure to pay such amount within ten (10) days after demand therefor shall be an event of default hereunder. The provision for such late charge shall be in addition to all of Lessor's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Lessor's remedies in any manner. (2) Exercise by Lessor of any one or more remedies hereunder granted or otherwise available shall not be deemed to be in acceptance of surrender of the premises by Lessee, whether by agreement or by operation of law, it being understood that such surrender can be effected only by the written agreement of Lessor and Lessee. All claims for damages by reason of such re-entry and/or repossession and/or alteration of locks or other security devices are hereby waived, as are all claims for damages by reason of any distress warrant. 13 14 forcible detainer proceedings, sequestration proceedings or other legal process. Lessee agrees that any re-entry by Lessor may be pursuant to judgment obtained in forcible detainer proceedings or other legal proceedings and Lessor shall not be liable in trespass or otherwise. (3) In the event Lessor elects to terminate the Lease by reason of an event of default, then notwithstanding such termination, Lessee shall be liable for and shall pay to Lessor, at the address specified for notice to Lessor herein: (a) the sum of all rental and other indebtedness accrued to date of such termination; (b) plus, as damages, an amount equal to the difference between (i) the total rental hereunder for the remaining portion of the Lease term (had such term not been terminated by Lessor prior to the date of expiration stated in Section 1) and (ii) the then present value of the then fair rental values of the Premises for such period. (4) In the event that Lessor elects to repossess the premises without terminating the Lease, then Lessee shall be liable for and shall pay to Lessor, at the address specified for notice to Lessor herein, all rental and other indebtedness accrued to the date of such repossession, plus rental required to be paid by Lessee to Lessor during the remainder of the Lease term until the date of expiration of the term as stated in SECTION 1 diminished by any net sums thereafter received by Lessor through reletting the premises during said period (after deducting expenses incurred by Lessor as provided in subsection (5) below). In no event shall Lessee be entitled to any excess of any rental obtained by reletting over and above the rental herein reserved. Actions to collect amounts due by Lessee to Lessor under this subsection may be brought from time to time, on one or more occasions, without the necessity of Lessor's waiting until expiration of the Lease term. (5) In case of any event of default by Lessee, or threatened or anticipatory default, Lessee shall also be liable for and shall pay to Lessor, at the address specified for notice to Lessor herein, in addition to any sum provided to be paid above, reasonable brokers' fees incurred by Lessor in connection with reletting the whole or any part of the Premises, the costs of removing and storing Lessee's property, the costs of repairing, altering, remodeling or otherwise putting the Premises into condition acceptable to a new tenant or tenants, and all reasonable expenses incurred by Lessor in enforcing or defending Lessor's rights and/or remedies including reasonable attorney's fees, which shall not be less than fifteen percent (15%) of all sums then owing by Lessee to Lessor whether suit is actually filed or not. (6) In the event of Lease termination or repossession of the Premises for an event of default by Lessee, Lessor shall not have any obligation to relet or to attempt to relet the Premises, or any portion thereof, or to collect rental after reletting; and in the event of reletting, Lessor may relet the whole or any portion of the Premises for any period to any tenant and for any use and purpose. 14 15 (7) If Lessee should fail to make any payment or cure any default hereunder within the time herein permitted, Lessor, without being under any obligation to do so and without thereby waiving such default, may make such payment and/or remedy such other default for the account of Lessee (and enter the Premises for such purpose), and thereupon Lessee shall pay Lessor, upon demand, all costs, expenses and disbursements (including reasonable attorney's fees) reasonably incurred by Lessor in taking such remedial action. (8) In the event Lessor shall have taken possession of the Premises pursuant to the authority herein granted then Lessor shall have the right to keep in place and use all of the furniture, fixtures and equipment at the Premises, including that which is owned by or leased to Lessee at all times prior to any foreclosure thereon by Lessor or repossession thereof by any lessor thereof or third party having a lien thereon. Lessor shall also have the right to remove from the Premises (without the necessity of obtaining a distress warrant, writ of sequestration or other legal process) all or any portion of such furniture, fixtures, equipment and other property located thereon and to place same in storage at any premises within the County in which the Premises is located; and in such event, Lessee shall be liable to Lessor for costs incurred by Lessor in connection with such removal and storage. Lessor shall also have the right to relinquish possession of all or any portion of such furniture, fixtures, equipment and other property to any person ("Claimant") claiming to be entitled to possession thereof who presents to Lessor a copy of any instrument represented to Lessor by Claimant to have been executed by Lessee (or any predecessor of Lessee) granting Claimant the right under various circumstances to take possession of such furniture, fixtures, equipment or other property, without the necessity on the part of the Lessor to inquire into the authenticity of said instrument's copy of Lessee's or Lessee's predecessor's signature thereon and without the necessity of Lessor making any nature of investigation or inquiry as to the validity of the factual or legal basis upon which Claimant purports to act; and Lessee agrees to indemnify and hold Lessor harmless from all cost, expense, loss, damage and liability incident to Lessor's relinquishment of possession of all or any portion of such furniture, fixtures, equipment or other property to Claimant. The rights of Lessor herein stated shall be in addition to any and all other rights which Lessor has or may hereafter have at law or in equity; and Lessee stipulates and agrees that the rights herein granted Lessor are commercially reasonable. (9) Nothing herein shall be construed to give rise to or create a warehouseman's lien on or security interest in, any of Lessee's product stored on the Premises. 13. ASSIGNMENT OR SUBLETTING - Lessee shall not sublet or assign the Lease hereunder except with the written consent of Lessor which consent shall not be unreasonably withheld. Such consent is not necessary if the Lease or assignment is made to a subsidiary, affiliate or parent company of Lessee for storage of the same products as stored by Lessee, but such consent and permission of Lessor must be obtained for products which are not the same. Consent of the Lessor will not be unreasonably withheld particularly if such products are compatible and do not alter the physical character of the Building. Provided the Lessee performs 15 16 all its covenants, agreements, and obligations hereunder, the Lessee shall have the peaceful and quiet enjoyment of the Premises without hindrance on the part of Lessor and the Lessor will warrant and defend the Lessee in the peaceful and quiet enjoyment of the Premises against the lawful claims of all persons claiming by, through, or under Lessor. 14. ACCESS TO PREMISES - (a) If a Materials Handling Service Agreement is in effect between Lessor and Lessee regarding the Premises, Lessor and its representative may, enter the Premises at all reasonable times for the purpose of: (1) examining the same or to make any alterations or repairs to the Premises that Lessor may deem necessary for safety or preservation of the facility; (2) exhibiting the Premises for sale or mortgage financing; (3) during the last six (6) months of the term of this Lease for exhibiting the Premises and putting up the usual notice "to rent," which notice shall not be removed, obliterated, or hidden by Lessee; and (4) performing under a Materials Handling Service Agreement between Lessor and Lessee; provided, however, that any such action by Lessor as aforesaid in this section shall cause as little inconvenience to Lessee as reasonably practicable, and such action shall not be deemed an eviction or disturbance of Lessee nor shall Lessee be allowed any abatement of rent, or damage for an injury of inconvenience occasioned thereby. (b) If a Materials Handling Service Agreement is not in effect between Lessor and Lessee, regarding the Premises, Lessor and its representative may, upon notifying Lessee in writing at least twenty four (24) hours in advance thereof, enter the Premises at all reasonable times for the purpose of: (1) examining the same or to make any alterations or repairs to the Premises that Lessor may deem necessary for safety or preservation of the facility; (2) exhibiting the Premises for sale or mortgage financing, and (3) during the last six (6) months of the term of this Lease for exhibiting the Premises and putting up the usual notice "to rent," which notice shall not be removed, obliterated, or hidden by Lessee, provided, however, that any such action by Lessor as aforesaid in this section shall cause as little inconvenience to Lessee as reasonably practicable, and such action shall not be deemed an eviction or disturbance of Lessee nor shall Lessee be allowed any abatement of rent, or damage for an injury of inconvenience occasioned thereby. 15. DAMAGE OR DESTRUCTION (a) If during the term of this Lease the Premises are damaged by fire or other casualty, but not to the extent that Lessee is prevented from carrying on business in the Premises, Lessor shall promptly cause the Premises and the improvements thereon to be repaired or restored at its sole cost and risk to substantially the condition in which they existed prior to such damage. If such damage renders any portion of the Premises untenantable, the rent reserved hereunder (except for variable rent) shall be reduced during the period of its untenantability proportionately to the amount by which the area so rendered untenantable bears to the entire area of the Premises, and such reduction shall be apportioned from the date of the casualty to the date when the 16 17 Premises is rendered fully tenantable. Provided, however, that if Lessor under a Materials Handling Service Agreement then in existence between Lessor and Lessee, can meet Lessee's service requirements for the Premises without additional cost to Lessee, despite the damage to the Premises, then no abatement of rent shall occur. Notwithstanding the foregoing, in the event such fire or other casualty damages or destroys any of Lessee's leasehold improvements, alterations, betterments, fixtures or equipment (exclusive of any such leasehold improvements, alterations, betterments, fixtures or equipment provided to Lessee by Lessor at Lessor's expense at the commencement of this Lease, which shall be restored by Lessor), Lessee shall cause the same to be repaired or restored at Lessee's sole expense (other than Lessee's personal property or equipment, which Lessee may elect, in Lessee's sole discretion, to repair or restore). (b) If during the term of this Lease the Premises are rendered wholly untenantable as a result of fire, the elements, or other casualty, Lessor and Lessee shall cause such damage to be repaired in accordance with the provisions of SUBSECTION 15(A). Such restoration shall be completed as promptly as reasonably possible under the circumstances and the fixed rent reserved hereunder shall abate until the Premises are again rendered tenantable. Notwithstanding the foregoing, in the event that it is reasonably determined by Lessor and Lessee that the Premises cannot be repaired by Lessor within one hundred twenty (120) days, and if Lessor is unable to provide alternative, comparable warehouse space sufficient to meet Lessee's service requirements without additional cost to Lessee, then Lessee shall have the right to terminate this Lease by written notice to Lessor within thirty (30) days after the date of such casualty. 16. CONDEMNATION (a) If during the term of this Lease all or a substantial part of the Premises are taken by or under power of eminent domain, this Lease shall terminate as of the date of such taking, and the rent (fixed and variable) shall be apportioned to and abate from and after, the date of taking. Lessee shall have no right to participate in any award or damages for such taking and, subject to SECTION 16(D) below, hereby assigns all of its right, title and interest therein to Lessor. For the purposes of this Section, "a substantial part of the Premises" shall mean such part that the remainder thereof is rendered inadequate for Lessee's business and that such remainder cannot practicably be repaired and improved so as to be rendered adequate to permit Lessee to carry on its business with substantially the same efficiency as before the taking, as determined in Lessor's and Lessee's reasonable judgment. (b) If during the term of this Lease less than a substantial part of the Premises (as hereinabove defined) is taken by or under power of eminent domain, this Lease shall remain in full force and effect according to its terms, and Lessee shall not have the right to participate in any award or damages for such taking and Lessee hereby assigns, subject to SECTION 16(D) below, all of its right, title and interest in and to the award to Lessor. In such event Lessor shall at its expense promptly make such repairs and improvements as shall be necessary to make the remainder of the Premises adequate to permit Lessee to carry on its business to substantially the same extent and with substantially the same efficiency as before the taking. If as a result of such 17 18 taking any part of the Premises is rendered permanently unusable, the rent reserved hereunder shall be reduced in such amount as may be fair and reasonable, which amount shall not exceed the proportion which the area so taken or made unusable bears to the total area which was usable by Lessee prior to the taking. If the taking does not render any part of the Premises unusable, there shall be no abatement of rent. (c) For purposes of this Section "taking" shall include a negotiated sale or lease and transfer of possession to a condemning authority under bona fide threat of condemnation, and Lessor alone shall have the right to negotiate with the condemning authority and conduct and settle all litigation connected with the condemnation. As used herein, the words "award or damages" shall, in the event of such sale or settlement, include the purchase or settlement price. (d) Nothing herein shall be deemed to prevent Lessee from claiming and receiving from the condemning authority, if legally payable, compensation for the taking of Lessee's own tangible property and damages for Lessee's loss of business, business interruption, or removal and relocation; provided such compensation does not in any way decrease the amount of the award or damages to which Lessor may be entitled by reason of such taking. 17. SUBORDINATION (a) This Lease shall be subject to and subordinate at all times to the lien of any mortgages and/or deeds of trust now or hereafter made on the Premises and to all advances made or hereafter to be made thereunder (unless the mortgagee or holder of the deed of trust elects to have Lessee's interest hereunder superior to the interest of the mortgagee or holder of such deed of trust) on and subject to the following conditions: (i) Lessee and the respective mortgagee have entered into the Non-Disturbance Agreement hereinafter described; (ii) the respective mortgagee shall agree in writing that the lien of its mortgage shall be fully released upon exercise by Lessee of its option to purchase hereunder and upon payment to said mortgagee of the Purchase Price, or part thereof as is specified in writing by Lessor and said mortgagee; and (iii) the mortgagee shall not interfere with, hinder or molest Lessee's right of quiet enjoyment under this Lease, nor the right of Lessee to continue to occupy the Premises, and all portions thereof, and to conduct its business thereon and to be entitled to the rights, benefits and options (including but not limited to options to renew and purchase) granted to Lessee herein in accordance with the covenants, conditions, provisions, terms and agreements of this Lease. Subject to the above conditions, Lessee agrees to execute, within 10 days of Lessor's request therefor, any and all documents which are desired to effect or confirm such subordination. (b) As long as Lessee is paying the rent and observing and performing all other terms as provided for in this Lease, the mortgagee, or if more than one, mortgagees, shall not disturb Lessee's possession. To assure that Lessee's quiet enjoyment of the Premises shall not be disturbed, Lessee and mortgagee have entered, or in the case of mortgages filed after the date hereof, will enter, into an agreement (the "Non-Disturbance Agreement") substantially in the form attached hereto as EXHIBIT E and made a part hereof. 18 19 (c) In the event that Lessor should at any time fail to pay any installment or interest under any mortgage, or any other sum required to be paid by Lessor, which failure constitutes a default under any mortgage so as to permit a foreclosure thereof, Lessee, upon being notified by such mortgage of Lessor's default, shall have the right, but not the obligation, to pay such principle, interest or other sums of which Lessor is in default, and to deduct the amount of such payment, along with the costs incurred by Lessee on account of Lessor's default, from the successive installments of rent then due or thereafter due, until Lessee is fully reimbursed for any and all such payments, costs, expenses and interests. 18. RIGHT TO PERFORM COVENANTS - If Lessee shall fail to perform any covenant or duty required of it by this Lease or by law or shall take any action requiring Lessor's consent without having obtained such consent, Lessor shall have the right (but not the obligation), after giving Lessee such notice and right to cure as provided for herein, to perform such covenant or duty or to take any action to terminate any acts of Lessee undertaken without Lessor's consent, and if necessary to enter the Premises for such purposes without notice. The cost thereof to Lessor shall be payable by Lessee, within 10 days of Lessor's demand therefor, and Lessor shall have the same rights and remedies with respect to such costs as for rent. If Lessor shall fail to perform any covenant or duty required of it by this Lease or by law, Lessee shall have the right (but not the obligation), upon thirty (30) days prior written notice to Lessor, to perform such covenant. The cost thereof to Lessee shall be payable by Lessor within ten (10) days after Lessee's demand therefor, and if Lessor fails to so pay Lessee, Lessee shall have the right to offset such costs against any and all rent due hereunder, or, in the event Lessee exercises the option to purchase set forth in SECTION 4 of this Lease, to credit any and all of said costs against the Purchase Price. 19. WATER AND OTHER DAMAGE - Unless caused by Lessor's intentionally tortious act, Lessor shall not be liable for, and Lessor is hereby released and relieved from, and Lessee hereby waives, all claims and demands of any kind by reason of or resulting from, damage or injury to person or property of Lessee, or any other party, directly or indirectly caused by (a) dampness, water, rain or snow, in any part of the Premises or in any part of the building, the land, or of any portion thereof leased to Lessee (whether attributable to roof leakage or otherwise) and/or (b) any leak or break in any gas or electric line in any part of the Premises, or any leak or break in any pipes, appliances or plumbing, or from sewers, or from any other place or any part of the buildings, Land, or any portion thereof leased to Lessee. 20. COVENANT OF QUIET ENJOYMENT - So long as the Lessee pays the rent, and performs all of its obligations in this Lease, the Lessee's possession of the Premises will not be disturbed by Lessor, or any party claiming by, through or under Lessor. 21. LIMITATION ON TENANTS RECOURSE - The Lessee's sole recourse against the Lessor, and any successor to the interest of the Lessor in the Premises, is to the interest of the Lessor, and any such successor, in the Premises. The Lessee will not have any right to satisfy any judgment which it may have against the Lessor, or any such successor, from any other assets of 19 20 the Lessor, or any such successor. In this Section the terms "Lessor" and "successor" include the shareholders, venturers, and partners of "Lessor" and "successor" and the officers, directors, and employees of "Lessor" and "successor". The provisions of this section are not intended to limit the Lessee's right to seek injunctive relief or specific performance, or the Lessee's right to claim the proceeds of insurance (if any) specifically required to be maintained by the Lessor hereunder. This provision will not be applicable to losses, damages or liabilities suffered by Lessee arising out of any fraud or willful or intentional misrepresentation in this Lease by Lessor or other intentionally tortious act of Lessor. 22. MISCELLANEOUS - ESTOPPEL CERTIFICATES - Within no more than thirty (30) days after written request by Lessor, Lessee will execute, acknowledge, and deliver to Lessor a certificate stating (a) that this Lease is unmodified and in full force and effect, or, if the Lease is modified, the way in which it is modified accompanied by a copy of the modification agreement, (b) the date to which rental and other sums payable under this Lease have been paid, (c) that no notice has been received by Lessee of any default which has not been cured, or, if such a default has not been cured, what Lessee intends to do in order to effect the cure, and when it will do so, (d) that Lessee has accepted and occupied the Premises, (e) that Lessee has no claim or offset against Lessor, or, if it does, stating the circumstances which gave rise to the claim or offset, (f) that Lessee is not aware of any prior assignment of this Lease by Lessor, or, if it is, stating the date of the assignment and assignee (if known to Lessee), and (g) such other matters as may be reasonably requested by Lessor. Any such certificate may be relied upon by any prospective purchaser of the Premises and any prospective mortgagee or beneficiary under any deed of trust or mortgage encumbering the Premises. If Lessor submits a completed certificate to Lessee, and if Lessee fails to object to its contents within thirty (30) days after its receipt of the completed certificate, the matters stated in the certificate will conclusively be deemed to be correct. Furthermore, Lessee irrevocably appoints Lessor as Lessee's attorney-in-fact to execute and deliver on Lessee's behalf any completed certificate to which Lessee does not object within thirty (30) days after its receipt. 23. HOLDING OVER - At the termination of this Lease by lapse of time, Lessee shall forthwith surrender possession of the Premises or, failing to do so, shall pay, at the election of Lessor, for each day possession is withheld, double the Fixed Rental herein to be paid by Lessee hereunder. The provisions of this Section shall not be held to be a waiver by Lessor of any right of re-entry, nor shall the receipt of such double rent, or any other act in apparent affirmance of the tenancy, operate to create a periodic tenancy or a tenancy at will or as a waiver of the right to terminate this Lease at any time. 24. USE OF PROPERTY (a) Manner of Use - Lessee shall not cause or permit the property to be used in any way which constitutes a violation of any law, ordinance, or governmental regulation or order, or which constitutes a nuisance or waste. Lessor shall obtain and pay a Certificate of Occupancy and Lessee shall obtain and pay for all other permits, including floor tax or personal property tax. 20 21 required for or related to Lessee's occupancy of the property and shall promptly take all actions necessary to comply with all applicable statutes, ordinances, rules, regulations, orders and requirements regulating or required as a direct result of, the Lessee's use of or activities conducted on the Premises, including the Occupational Safety and Health Act, federal, state and local environmental laws and regulations, and the Americans with Disabilities Act. Lessee shall use the Premises as a warehouse for food products and other products dealt in by Lessee or its affiliates so long as compatible with the operation of the Premises as a food warehouse. Lessee may not make material changes, alterations, or improvements to the Premises without Lessor's written approval, which approval shall not be unreasonably withheld. (b) HAZARDOUS MATERIALS - As used in this Lease, the term "Hazardous Materials" means any flammable items, explosives, radioactive materials, hazardous or toxic substances, material or waste or related materials, including any substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials" or "toxic substances" now or subsequently regulated under any applicable federal, state or local laws or regulations, including without limitation petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs and similar compounds, and including any different products and materials which are subsequently found to have adverse effects on the environment or the health and safety of persons. Lessee shall not cause or permit any Hazardous Material (other than insecticides, pesticides and other substances used in the ordinary course of Lessee's business for pest control, if used in accordance with government standards for a food warehouse) to be generated, produced, brought upon, used, stored, treated or disposed of in or about the Premises by Lessee, its agents, employees, contractors, sublessees or invitees without the prior written consent of Lessor. Lessee represents and warrants that Lessee shall defend, indemnify and hold Lessor harmless from and against any and all claims, damages, demands, actions, causes of action, costs and expenses, including fines, penalties and reasonable attorney fees, on account of, or in any way relating to Hazardous Materials introduced to or used upon the Premises by Lessee. 25. COMPATIBLE WAREHOUSE CUSTOMERS - Lessor hereby agrees that if and to the extent Lessee does not need or use all of the Premises in connection with the warehousing of its products, Lessor will use its best efforts to obtain additional compatible warehouse customers for the Premises to utilize space not needed by Lessee in connection with its use of the Premises. Such additional warehouse customers and the length of their respective lease, storage or warehouse agreement shall be subject to the prior written approval of Lessee. All storage charges paid by such additional warehouse customers shall be applied to reduce the amount of Fixed Rental and Variable Rental payable by Lessee hereunder. 21 22 26. ENTIRE AGREEMENT - This Lease contains the entire agreement between the parties and any executory agreement hereafter made shall be ineffective to change, modify or discharge the Lease in whole or in part unless such executory agreement is in writing and signed by both of the parties hereto. 27. GOVERNING LAW - This Lease shall be interpreted and enforced in accordance with and governed by the laws of the State of South Carolina, and any litigation which may arise shall be litigated in the State of Missouri, except that any litigation affecting possession of, or an estate in, the Premises requiring enforcement in South Carolina shall be litigated in South Carolina. 28. NOTICES - Notices and demands shall be given by Certified Mail at the addresses below, or at such other address as either party may by notice designate: LESSEE: AMERICAN ITALIAN PASTA COMPANY 1000 Italian Way Excelsior Springs, MO 64024 LESSOR: LANTER COMPANY 1600 COLLINSVILLE AVENUE MADISON, IL 62060 ATTENTION: PRESIDENT 29. SURVIVAL OF OBLIGATIONS - All obligations of Lessee or Lessor which by their nature involve performance, in any particular, after the end of the term, or which cannot be ascertained to have been fully performed until after the term of this Lease has expired or been terminated, and all representations, warranties and indemnifications set forth herein, shall survive the expiration or sooner termination of the term of this Lease. 30. REPRESENTATIONS AND WARRANTIES OF LESSOR - (a) Lessor is a Delaware corporation, duly organized validly existing and in good standing in the State of South Carolina. Lessor has full right and authority to enter into this Lease for the full term hereof and has taken all action necessary to authorize this Lease. (b) All utilities necessary for the use and operation of the Premises under this Lease are available at the Premises. (c) Lessor has not dealt with or used any real estate agent or broker in connection with this Lease. 22 23 (d) To the best of Lessor's knowledge, the Premises are in compliance with all applicable statutes, ordinances, rules, regulations, orders and other governmental requirements. The Premises shall be constructed by Lessor in accordance with all applicable building codes, laws and regulations. 31. SIGNS. Lessee shall have the right to erect such signs on the Premises as it desires. 32. EXPANSION OF PREMISES. Lessor acknowledges and agrees that it agreed to construct the Building and to enter into this Lease with Lessee on the understanding that Lessee may desire, during the Initial Term or any renewal term of this Lease, that the Building described in this Lease be expanded to accommodate the distribution and warehouse needs of Lessee. Lessor, upon written notification by Lessee, agrees to finance and construct any such expansion of the Building as desired by Lessee, and such expansion space (the "Expansion Space") shall be deemed to be a part of the Premises and shall be leased to Lessee on the same terms and conditions as set forth in this Lease, except for (i) Fixed Rental, which shall be adjusted to reflect the cost to Lessor of constructing the Expansion Space and shall be negotiated in good faith by Lessor and Lessee, and (ii) the Purchase Price under SECTION 4 hereof, which also shall be accordingly adjusted by agreement of the Lessor and Lessee. Upon completion of the Expansion Space, Lessor and Lessee shall execute an addendum to this Lease reflecting the correct legal description of the Premises, including the Expansion Space, the revised Purchase Price under SECTION 4, and the revised Fixed Rental, and shall also execute and record an amendment to the Memorandum of Lease to reflect the foregoing. 33. ARBITRATION. Except for a dispute relating to a failure by Lessee to pay Fixed Rental herein, in the event of any dispute between the parties regarding any matter arising under this Lease, Lessor and Lessee will make a sincere and earnest effort to resolve and settle such dispute by friendly and good faith negotiation and discussion. If, despite such cooperative effort, any such dispute cannot be resolved within thirty (30) days, the dispute shall thereafter, upon ten (10) days' prior written notice from one party to the other, be submitted and settled by arbitration. Such arbitration shall be effected by arbitrators selected as provided below and shall be conducted in accordance with the rules of the American Arbitration Association existing at the time of submission and in accordance with the laws of the State of South Carolina. The dispute shall be submitted to three (3) arbitrators, one of whom shall be selected by the Lessor, one of whom shall be selected by Lessee, and the third of whom shall be selected by the two arbitrators so selected, or if they cannot agree, such third arbitrator shall be selected by the American American Arbitration Association. In the event either Lessor or Lessee, within thirty (30) days after any notice of arbitration referred to above shall not have selected its arbitrator and given notice thereof to the other party, such arbitrator shall be selected by the American Arbitration Association. Any necessary arbitration hearings shall be conducted, unless otherwise agreed by all of the arbitrators in Columbia, South Carolina. The costs of arbitration shall be assumed and paid one-half by Lessor and one-half by Lessee, but the individual costs and expenses of each party (including attorneys' fees) shall be assumed and paid by the party incurring the same. 23 24 34. ADDENDUM TO LEASE - Upon execution by Lessor and Lessee of the easement referenced on EXHIBIT A attached hereto, the parties shall execute an addendum to this Lease amending EXHIBIT A to include the legal description of and reference to said easement. IN WITNESS WHEREOF, the parties hereto executed this document as of the date above first written. THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. WITNESSED BY: LESSOR: LANTER COMPANY /s/ Illegible By Wayne E. Lanter - -------------------------- --------------------------- CEO VP FINANCE - -------------------------- WITNESSED BY: LESSEE: AMERICAN ITALIAN PASTA COMPANY /s/ David E. Watson By /s/ Timothy S. Webster - -------------------------- ---------------------------- CEO VP FINANCE - -------------------------- 24 EX-10.10 6 1992 STOCK OPTION PLAN 1 EXHIBIT 10.10 AMERICAN ITALIAN PASTA COMPANY 1992 STOCK OPTION PLAN 1. Purpose. The American Italian Pasta Company Stock Option Plan (the "Plan") is intended to advance the interests of American Italian Pasta Company (the "Company") and its shareholders by encouraging and enabling selected officers and other key employees and consultants upon whose judgment, initiative and effort the Company is largely dependent for the successful conduct of its business, to acquire and retain a proprietary interest in the Company by ownership of its Common Shares (as defined below). The Plan shall become effective as of October 30, 1992 (the "Effective Date"). 2. Definitions. "Board" means the Board of Directors of the Company. "Cause", with respect to any Optionee means, (i) cause as defined in the employment or consulting agreement with the Company to which the Optionee is a party or, if none, (ii) the occurrence of any of the following events: (A) the willful and continued failure by such Optionee to substantially perform his duties with the Company on a full-time basis (other than any such failure resulting from total or partial incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to such Optionee by the Board, which demand identifies the manner in which the Board believes that he has not substantially performed such duties; (B) the willful engaging by such Optionee in conduct which is significantly injurious to the Company, monetarily or otherwise, after a written demand for cessation of such conduct is delivered to such individual by the Board, which demand specifically identifies the manner the Board believes that such individual has engaged in such conduct and the injury to the Company resulting therefrom; (C) the commission by such Optionee of an act or acts constituting a crime involving moral turpitude; (D) the breach by such Optionee of one or more covenants, if any, in any agreement to which the Optionee and the Company are parties; (E) such Optionee's use of illegal drugs, abuse of other controlled substances or habitual intoxication; or 2 (F) the commission by such Optionee of a significant act of dishonesty, deceit or breach of fiduciary duty in the performance of the Optionee's duties with the Company. For purposes of clauses (A) and (B) of this definition, no act, or failure to act, on the part of an Optionee shall be deemed to be willful unless knowingly done, or omitted to be done, by such Optionee not in good faith and without a reasonable belief that such action or omission was in the best interests of the Company. "Closing Option" an Initial Option having the terms specified in the Option Agreement to which the Optionee is a party. The terms of Closing Options may differ for different Optionees. "Code" means the Internal Revenue Code of 1986, as amended, from time to time. "Committee" means (i) a committee designated by the Board and delegated the functions of the Committee under this Plan, which shall be comprised of least two directors or (ii) if at any time such a committee has not been designated, the Board. "Common Shares" means the Common Stock, no par value, of the Company. "Date of Grant" means, with respect to any Option, the date as of which such Option is granted under the Plan. "Disability", with respect to any Optionee, means (i) Disability as defined in the employment or consulting agreement with the Company to which the Optionee is a party or, if none or if not defined therein, (ii) physical or mental incapacity resulting in such Optionee being unable to substantially perform his duties for more than six (6) consecutive months or an aggregate of six (6) months in any period of twelve (12) consecutive months as determined in writing by a qualified independent physician mutually acceptable to the Optionee and the Company. "Effective Date" has the meaning set forth in Section 1 hereof. "Employee" means any employee of the Company. "Fair Market Value" (i) with respect to any Option or any portion thereof at any time means (x) the value of one Common Share, determined as set forth in clause (ii), minus (y) the respective exercise price(s) per share; which amount shall be multiplied by (z) the number of Common Shares subject to such Option or applicable portion thereof; and (ii) with respect to any Common Shares, means (1) the "Section 4.2 Sales Price", the "Section 4.3 Sales Price" or the "Common Stock Sale Price" (each as defined in the Shareholders Agreement) whichever has been most recently determined for Common Shares provided such determination 2 3 has been made within the past year, and if none, (2) the Fair Market Value as determined in good faith by the Committee. "Follow-on Option" means an Initial Option having the terms specified in the Option Agreement to which the Optionee is a party. The terms of Follow-on Options may differ for different Optionees. "Incentive Stock Option" means any Option that is intended to meet the requirements of Section 422 of the Code and any successor provision thereto and the regulations thereunder. "Initial Options" has the meaning set forth in Section 4 hereof. "Non-Qualified Stock Option" means any Option that is not an Incentive Stock Option. "Option" means a Initial Option or an Other Option granted under this Plan. "Option Agreement" means any agreement or other instrument pursuant to which an Option is granted to an Optionee. "Optionee" means a Person to whom an Option has been granted under the Plan and who has rights therein under the Plan. "Other Options" has the meaning set forth in Section 4 hereof. "Payment Note" has the meaning set forth in Section 6(h) hereof. "Person" means any individual, corporation, partnership, joint stock company, trust, joint venture, association, or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Public Offering" means any underwritten public offering of equity securities (or securities convertible into equity securities) of the Company pursuant to an effective registration statement under the Securities Act of 1933 other than pursuant to a registration statement on Form S-8 or any successor or similar form. "Realization Event" has the meaning set forth in the Shareholders Agreement. "Retirement" means, unless otherwise agreed by contract, with respect to any Optionee, such Optionee's termination of employment with the Company (i) pursuant to any arrangement of the Company providing for early retirement of its Employees, (ii) at an age of not less than 65 years or (iii) otherwise determined by the Committee to be a retirement. "Seller" has the meaning set forth in Section 6(h)(iii) hereof. 3 4 "Shareholders Agreement" means the Shareholders Agreement dated as of October 30, 1992 among the Company, The Morgan Stanley Leveraged Equity Fund II, L.P., a Delaware limited partnership, Richard C. Thompson, and Citicorp Venture Capital, Ltd. and the other parties thereto, as in effect from time to time. "Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect at least 50% of the members of the board of directors or other persons performing similar functions are directly or indirectly owned by the Company. "Successor" means the legal representative of a deceased Optionee or the person or persons who acquire the right to exercise an Option by bequest or inheritance or by reason of the death or legal incapacity of any Optionee. "Vested Portion" has the meaning set forth in Section 6(c) hereof. "Vesting Schedule" has the meaning set forth in Section 6(d) hereof. "Year End" means the last day of the one year period which begins, as to each Option, on the day on which such Option was granted or an anniversary of such date. 3. Administration of Plan. (a) The Plan shall be supervised and administered by the Committee which shall have full and final authority in its discretion, subject to the provisions of the Plan and applicable law, to determine the individuals to whom and the time or times at which Options shall be granted and the number of Common Shares covered by each Option; to determine the terms of any Payment Note; to construe and interpret the Plan, any Option Agreement and any Payment Note; and to make all other determinations and take all other actions deemed necessary or advisable for the administration of the Plan. (b) Determinations Under the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, any Optionee, any Successor, any Seller, any shareholder and any Employee. 4. Common Shares Subject to Options. Subject to adjustment as provided in Section 7, the aggregate number of Common Shares which may be issued upon the exercise of Options granted under the Plan shall be 147,804. Of such 147,804 Common Shares, there are reserved for issuance under the Plan (i) an aggregate of 103,463 Common Shares in respect of Options granted as of the Effective Date, (the "Initial Options") and (ii) an aggregate of 44,341 Common Shares in respect of Common Options which may be granted after the Effective Date ("Other Options"). Initial Options may be Closing Options or Follow-on Options. The Common Shares to be issued upon the exercise of Options may consist of authorized but unissued shares, treasury shares or other shares issued and reacquired by the Company or shares otherwise acquired for the purposes of the Plan. If any Option shall, for any reason, terminate or expire or be surrendered without having been exercised in full or otherwise without the delivery of 4 5 Common Shares, the Common Shares subject to such Option but not purchased thereunder shall again be available for new Options to be granted under the Plan. 5. Grants to Participants. Options may be granted under the Plan to any person who is or who agrees to become an officer or other key Employee (including officers and Employees who are also directors) of, or a consultant to, the Company or any of its present or future Subsidiaries. Subject to the provisions of the Plan including Section 6 below, the Committee shall have the sole and complete authority to determine the exercise price per share for an Other Option and the terms of each Option Agreement, which may be different for each Optionee. Other Options may be either Non-Qualified Stock Options or Incentive Stock Options. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code and any regulations promulgated thereunder. 6. Terms and Conditions of Options. Any Option granted under the Plan shall be evidenced by an Option Agreement executed by the Company and the Optionee and shall contain terms and conditions not inconsistent with the following limitations and conditions: (a) Exercise Price. Each Option shall represent the right to purchase one or more Common Shares at a purchase price per share set forth in the Option Agreement. (b) Period of Option. The term of each Option shall be 10 years from the Date of Grant of such Option subject to earlier termination and expiration as provided in Section 6(g), in the Option Agreement or in another agreement to which the Optionee is a party. (c) Exercise of Options in General. All or any part of the Vested Portion of each Option shall be exercisable at such times, throughout a period commencing on the date such Option becomes exercisable in accordance with its terms ending upon the expiration or termination of such Option as determined in the sole discretion of the Committee and set forth herein or in the applicable Option Agreement. The Committee may impose in any Option Agreement such conditions with respect to the exercise of each Option as it may deem necessary or advisable. The Vested Portion of each Option shall be that portion which shall have become exercisable and shall not have been previously exercised, as determined in accordance with Subsection (d) below. (d) Vesting Schedule. Unless and to the extent otherwise provided in an Option Agreement and subject to clauses (ii) through (v) below and Section 6(g), the following schedule (the "Vesting Schedule") applies to all Options: Years of Service Since Date of Grant Vested Portion ------------------- -------------- 1 20% 2 40% 3 60% 5 6 4 80% 5 100% (ii) Notwithstanding the Vesting Schedule above but subject to the provisions of an Option Agreement, in the event of the Optionee's termination of employment or consulting arrangement with the Company due to the Optionee's death or Disability, each outstanding Option held by the Optionee shall become exercisable in full with respect to all Common Shares covered thereby. (iii) Notwithstanding the Vesting Schedule above but subject to the provisions of an Option Agreement, in the event of the Optionee's Retirement or termination of employment by the Company without Cause each outstanding Option held by such Optionee shall become exercisable with respect to that number of Common Shares which is obtained by multiplying the number of Common Shares covered by the Option by a fraction, the numerator of which is the number of months the Optionee has been employed with the Company following the Date of Grant and the denominator of which is 60. The portion of such Option not becoming vested and exercisable in accordance with the foregoing sentence shall be cancelled upon any termination of employment. (iv) Notwithstanding the Vesting Schedule above but subject to the provisions of an Option Agreement, upon occurrence of a Realization Event, each outstanding Option shall become exercisable in full with respect to all Common Shares covered thereby as of a date immediately prior to the occurrence of such Realization Event. (v) No provision of this Section 6(d) shall impair the Committee's authority to accelerate the exercisability of any outstanding Option at any time, or to provide in any Option Agreement for provisions that differ from the provisions set forth in this Section (d) relating to vesting upon termination of employment or a Realization Event. (e) Shareholder Rights. Each Optionee shall, if requested by the Company on or after the Date of Grant, execute and become a party to the Shareholders Agreement or a similar type of agreement with such provisions regarding shareholder matters as the Company considers appropriate. An Optionee shall not have any of the rights of a shareholder of the Company in respect of the Common Shares subject to an Option until or unless certificates evidencing the Common Shares purchased pursuant to the exercise of such Option are properly delivered to such Optionee. (f) Nontransferability. Except as otherwise provided in the Option Agreement to which the Optionee is a party and notwithstanding any other provision of this Plan or the Shareholders Agreement, no Option shall be transferable or assignable by an Optionee, other than by will or the laws of descent and distribution, and each such Option shall be exercisable, during the Optionee's lifetime, only by such Optionee. 6 7 (g) Certain Forfeitures and Repurchases of Options. (i) Unless otherwise expressly provided in the Option Agreement or in another agreement between the Company and the Optionee, upon the Company's termination of an Optionee's employment for Cause, any Option (whether or not then exercisable) held by such Optionee shall be deemed immediately forfeited and cancelled without any payment or consideration being due from the Company. (ii) Unless otherwise expressly provided in the Option Agreement or in another agreement between the Company and the Optionee, upon termination of an Optionee's employment with the Company other than by the Company for Cause, the unvested portion of any Option held by such Optionee shall be deemed immediately forfeited and cancelled and the Vested Portion of any Option held by the Optionee shall, at the Company's election at any time after such termination, be subject to purchase by the Company for an amount equal to the Fair Market Value of such Vested Portion of such Option on the repurchase date. In the event the Fair Market Value of the Vested Portion of any such Option shall be zero or less, the repurchase of such Option shall be effected by the delivery by the Company to the Optionee or his Successor, as appropriate, of a written notice stating that the Fair Market Value is zero and that such option is cancelled. If the Company elects to purchase the Vested Portion of an Option pursuant to this section 6(g), the Company shall deliver written notice (a "Purchase Notice") to such Optionee or such Optionee's Successor, as appropriate, to such effect. Upon receipt of any Purchase Notice each Option subject to being purchased shall be deemed to be expired and cancelled automatically upon receipt of the Purchase Notice and the purchase price. Payment of the purchase price may be made in cash or by certified check. Payment effected through a promissory note of the Company in accordance with the provisions of Section 6(h)(iv) hereof shall be deemed payment in cash for purposes of this Section 6(g). (h) Certain Repurchases of Common Shares. (i) Notwithstanding any other provision of this Plan or the Shareholders Agreement but subject to the provisions of an Option Agreement, Upon the termination of an Optionee's employment prior to an initial Public Offering by the company, the Company may elect, at any time after such termination and prior to such Public Offering, to require such Optionee or his Successor to sell to the Company, and such Optionee or such Successor shall sell, all Common Shares acquired as a result of the exercise of an option and owned by such Optionee and Successor in accordance with this Section 6(h). The price at which such Surrendered Shares (as defined in Section 6(h)(iii)) may be repurchased shall be determined as follows: (1) in the case of a repurchase arising from a termination under the circumstances set forth in Section 6(g)(i), an amount equal to the product of (x) the lower of (A) the exercise price for the Option pursuant to which the Common Shares were purchased and (B) the Fair Market Value of a Common Share as of the date of such termination of employment multiplied by (y) the number of Common Shares so repurchased, and (2) in the case of a repurchase arising from a termination under the circumstances set forth in Section 6(g)(ii), an amount equal to the product of Fair Market Value of a Common Share as of the termination date multiplied by the number of Common Shares repurchased. 7 8 (ii) If the Company elects to exercise its right to require any Optionee or any Optionee's Successor to sell Common Shares pursuant to this Section 6(h), the Company shall deliver written notice (a "Repurchase Notice") to such Optionee or such Successor to such effect. (iii) The Common Shares specified in the Repurchase Notice as being subject to repurchase (collectively, "Surrendered Shares") shall be surrendered for repurchase within (10) ten business days of the date of such receipt of such notice (the "Repurchase Date"). On the Repurchase Date, the Optionee or the Optionee's Successor selling such Surrendered Shares (the "Seller") shall deliver to the Company the certificate or certificates representing the Surrendered Shares owned by such Seller on such date against delivery by the Company of the repurchase amount to such Seller, which may be paid at the election of the Company, in cash or by certified check, or, in the event the Company is prohibited from making payment with cash as a result of a credit agreement or debt obligation binding upon the Company, by a promissory note issued by the Company (a "Payment Note") payable to the order of the Seller. All certificates for Surrendered Shares shall be duly endorsed in favor of the Company by the Seller in whose name such certificate or certificates is registered or accompanied by a duly executed stock or security assignment in favor of the Company with the signature(s) thereon guaranteed by a commercial bank or trust company or a member of a national securities exchange or the National Association of Securities Dealers Inc. If any Seller shall fail to deliver such certificate or certificates (or evidence) to the Company within the time required, the Company shall cause its books and records to show that the Surrendered Shares are bound by the provisions of this Section 6(h) of the Plan and that the Surrendered Shares, until transferred to the Company, shall not be entitled to any proxy, dividend or other rights from the date by which such certificate or certificates should have been delivered to the Company. (iv) Each Payment Note shall (A) be payable to the order of the Seller, (B) be issued and dated the Repurchase Date, (C) be in a principal amount equal to the repurchase price of such Surrendered Shares and (D) mature on demand or at a stated maturity date. Each Payment Note shall bear interest in respect of the unpaid principal amount of such Payment Note from the Repurchase Date to the maturity date thereof at a rate per annum equal to the then-current yield to maturity on United States treasury securities of comparable maturity, as determined in good faith by the Company, plus 100 basis points. (v) The Company shall have the right to resell to any Person any Surrendered Shares received from a Seller pursuant to this Section 6(h), whether or not the applicable Repurchase Price has been paid to such Seller; provided that any such sale or other disposition by the Company of Surrendered Shares shall not relieve the Company of its obligation to pay the applicable repurchase price for such Surrendered Shares. (i) Other Provisions. The grant of any Option may also be subject to such other provisions (whether or not applicable to any Option granted to any other Optionee) as the Committee deems appropriate, including provisions to assist the Optionee in financing the acquisition of Common Shares, provisions for the forfeiture of, or restrictions on resale or other disposition of, share acquired under any Option in addition to those provisions set forth in Section 8 hereof or in the Shareholders Agreement, provisions giving the Company the right to purchase Options in circumstances other than those described in Section 6(g) and to repurchase shares acquired under any Option in the event the Optionee elects to dispose of such shares, provisions to comply with federal and state securities laws, understandings or conditions as to the Optionee's employment in addition to those specifically provided for under the Plan and provisions accelerating the vesting of any Option upon the occurrence of specified events or otherwise in the discretion of the Committee. 7. Adjustment Provisions. (a) If the Company shall at any time change the number of issued Common Shares without new consideration to it (by stock dividends, stock splits, or similar transactions), the total number of Common Shares reserved for issuance under this Plan and the number of such shares covered by each outstanding Option shall be adjusted so that the aggregate consideration payable by the Optionee upon exercise, and the benefit intended to be provided under each such Option immediately before and immediately after such adjustment, shall be maintained. (b) In the case of any merger, recapitalization, consolidation, split-up, spin-off, repurchase, distribution or similar transaction affecting the Common Shares, the Committee shall take such action as in its sole discretion it deems appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan and the Options granted hereunder. (c) Notwithstanding any other provision of this Plan, and without affecting the number of Common Shares reserved or available hereunder, the Committee may authorize the issuance or assumption of Options or similar rights in connection with any merger, consolidation, acquisition of property or stock, or reorganization, whether or not the Company is a surviving or continuing corporation, upon such terms and conditions as it may deem appropriate. (d) Notwithstanding any other provision of this Plan, the payment to any Optionee at any time of an amount equal to the excess, if any, of the Fair Market Value at such time of the number of Common Shares subject to such Option over the aggregate exercise price 8 9 of such Option, in consideration of the cancellation thereof, shall extinguish any rights of the holder of such Option in connection therewith. (e) In the event of the dissolution or liquidation of the Company, any Option granted under the Plan shall terminate as of a date to be fixed by the Committee, provided that not less than (30) thirty days' written notice of the date so fixed shall be given to each Optionee and each such Optionee shall have the right during such period to exercise his option as to all or any part of the Common Shares covered thereby. 8. Restrictions on Common Shares Issued. The exercise of each Option shall be subject to the condition that if at any time the Company shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any Common Share otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of Common Shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 9. No Right to Continued Service. The granting of an Option to any person does not alter in any way the rights of the Company to terminate such Optionee's employment or consulting arrangement at any time for any reason nor does it confer upon such person any rights or privileges to continue employment or otherwise except as specifically provided for in the Plan. 10. Amendment, Suspension, and Termination of Plan. The Board may at any time suspend or terminate the Plan or may amend it from time to time in such respects as the Board may deem advisable, in the best interests of the Company and in accordance with the purposes of the Plan; provided, however, that without approval by the holders of a majority of the securities of the Company entitled to vote, no such amendments shall (i) except as specified in Section 7, increase the maximum number of Common Shares with respect to which Options may be granted under the Plan, or (ii) change the provisions of the second sentence of this Section 10 relating to the term of this Plan. Unless the Plan shall theretofore have been terminated by the Board, the Plan shall terminate 10 years after the Effective Date of the Plan. No Option may be granted during any suspension or after the termination of the Plan. No amendment, suspension, or termination of the Plan shall, without an Optionee's consent, impair any of the rights or obligations under any Option theretofore granted to such Optionee under the Plan. 11. Withholding. The Company may establish appropriate procedures to provide for payment of such income and other taxes as may be required by law to be paid or withheld in connection with the exercise of options, and to ensure that the Company receives prompt advice concerning the occurrence of any event that may create, or affect the timing or amount of, any obligation to pay or withhold such taxes or that may make available to the Company any 9 10 tax deduction resulting from such occurrence. Without limiting the generality of the foregoing, an Optionee may be given the opportunity to elect to have Common Shares withheld to satisfy withholding obligations. 10 EX-10.11 7 1993 NONQUALIFIED STOCK OPTION PLAN 1 EXHIBIT 10.11 AMERICAN ITALIAN PASTA COMPANY 1993 NONQUALIFIED STOCK OPTION PLAN 1. PURPOSE. The American Italian Pasta Company 1993 Nonqualified Stock Option Plan (the "Plan") is intended to advance the interests of American Italian Pasta Company (the "Company") and its shareholders by encouraging and enabling selected key employees upon whose judgment, initiative and effort the Company is largely dependent for the successful conduct of its business, to acquire and retain a proprietary interest in the Company by ownership of its Common Shares (as defined below). The Plan shall become effective as of December 8, 1993 (the "Effective Date"). 2. DEFINITIONS. "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person, provided that no stockholder of the Company shall be deemed an Affiliate of any other stockholder solely by reason of any investment in the Company. For the purpose of this definition, the term "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "AFFILIATED EMPLOYEE BENEFIT TRUST" means any trust that is a successor to the assets held by a trust established under an employee benefit plan subject to ERISA or any other trust established directly or indirectly under such plan or any other such plan having the same sponsor. "BOARD" means the Board of Directors of the Company. "CHANGE IN CONTROL" means any event that results in (x) any person or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934 as in effect on September 1, 1992) other than Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF") or any of its Permitted Transferees or any group consisting solely of such persons) having beneficial ownership in excess of 50% of the outstanding Voting Stock or (y) any person or group (other than aforesaid) acquiring all or substantially all of the assets of the Company. "CODE" means the Internal Revenue Code of 1986, as amended, from time to time. "COMMITTEE" means (i) a committee designated by the Board and delegated the functions of the Committee under this Plan, which shall be comprised of at least two directors or (ii) if at any time such a committee has not been designated, the Board. "COMMON SHARES" means the Common Stock, no par value, of the Company. 2 "COMMON STOCK" means the Common Stock, no par value, of the Company. "DATE OF GRANT" means, with respect to any Option, the date as of which such Option is granted under the Plan. "DISABILITY", with respect to any Optionee, means physical or mental incapacity resulting in such Optionee being unable to substantially perform his duties for more than six (6) consecutive months or an aggregate of six (6) months in any period of twelve (12) consecutive months as determined in writing by a qualified independent physician mutually acceptable to the Optionee and the Company. "EFFECTIVE DATE" has the meaning set forth in Section 1 hereof. "EMPLOYEE" means any employee of the Company. "FAIR MARKET VALUE" (i) with respect to any Option or any portion thereof at any time means (x) the value of one Common Share, determined as set forth in clause (ii), minus (y) the respective exercise price(s) per share; which amount shall be multiplied by (z) the number of Common Shares subject to such Option or applicable portion thereof; and (ii) with respect to any Common Shares, means fair market value of such Common Shares as determined in good faith by the Committee. "INITIAL OPTION" means the first Option granted to a particular Employee. "OPTION" means any Option granted under this Plan and includes any Initial Option. The terms of an Option may differ for different Optionees. "OPTION AGREEMENT" means any agreement or other instrument pursuant to which an Option is granted to an Optionee. "OPTIONEE" means a Person to whom an Option has been granted under the Plan and who has rights therein under the Plan. "PAYMENT NOTE" has the meaning set forth in Section 6(i) hereof. "PERMITTED TRANSFEREES" means (w) any general or limited partner of MSLEF (a "MSLEF Partner"), and any corporation, partnership, Affiliated Employee Benefit Trust or other entity which is an Affiliate of any MSLEF Partner (collectively, the "MSLEF Affiliates"),(x) any managing director, general partner, limited partner, director, officer or employee of MSLEF or a MSLEF Affiliate (collectively, "MSLEF Associates"), (y) the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any MSLEF Associate, and (z) a trust the beneficiaries of which, or a corporation, or partnership, the stockholders or general or limited partners of which, include on MSLEF, MSLEF Affiliates, MSLEF Associates, their spouses or their lineal descendants. 2 3 "PERSON" means any individual, corporation, partnership, joint stock company, trust, joint venture, association, or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PUBLIC OFFERING" means any underwritten public offering of equity securities (or securities convertible into equity securities) of the Company pursuant to an effective registration statement under the Securities Act of 1933 other than pursuant to a registration statement of Form S-8 or any successor or similar form. "REALIZATION OF EVENT" means any sale of all or substantially all of the assets of the Company, any sale of at least a majority of the Voting Stock on a primary or secondary basis, or any recapitalization, reclassification, merger or consolidation involving a Change of Control. "RETIREMENT" means, unless otherwise agreed by contract, with respect to any Optionee, such Optionee's termination of employment with the Company (i) pursuant to any arrangement of the Company providing for early retirement of its Employees, (ii) at an age of not less than 65 years or (iii) otherwise determined by the Committee to be a retirement. "SELLER" has the meaning set forth in Section 6 (i) (iii) hereof. "SUBSIDIARY" means any entity of which securities or other ownership interests having ordinary voting power to elect at least 50% of the members of the board of directors or other persons performing similar functions are directly or indirectly owned by the Company. "SUCCESSOR" means the legal representative of a deceased Optionee or the person or persons who acquire the right to exercise an Option by bequest or inheritance or by reason of the death or legal incapacity of any Optionee. "VESTED OPTION" has the meaning set forth in Section 6(c) hereof. "VESTING SCHEDULE" has the meaning set forth in Section 6(d) hereof. "VOTING STOCK" means the Common Stock and the Class A Common Stock of the Company. 3. ADMINISTRATION OF PLAN. (a) The Plan shall be supervised and administered by the Committee which shall have full and final authority in its discretion, subject to the provisions of the Plan and applicable law, to determine the individuals to whom and the time or times at which Options shall be granted and the number of Common Shares covered by each Option; to determine the terms of any Payment Note; to construe and interpret the Plan, any Option Agreement and any Payment Note; and to make all other determinations and take all other actions deemed necessary or advisable for the administration of the Plan. 3 4 (b) DETERMINATIONS UNDER THE PLAN. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, any Optionee, any Successor, any Seller, any shareholder and any Employee. 4. COMMON SHARES SUBJECT TO OPTIONS. Subject to adjustment as provided in Section 7, the aggregate number of Common Shares which may be issued upon the exercise of Options granted under the Plan shall be 7,000. The Common Shares to be issued upon the exercise of Options may consist of authorized but unissued shares, treasury shares or other shares issued and reacquired by the Company or shares otherwise acquired for the purposes of the Plan. If any Option shall, for any reason, terminate or expire or be surrendered without having been exercised in full or otherwise without the delivery of Common Shares, the Common Shares subject to such Option but not purchased thereunder shall again be available for new Options to be granted under the Plan. 5. GRANTS TO PARTICIPANTS. Options may be granted under the Plan to any person who has been an employee of the Company or any of its present or future Subsidiaries for a period of one (1) year or more; provided, however, that the Committee may, in its sole discretion, grant one or more Options under the Plan to any person who has been an Employee of the Company or of any of its present or future Subsidiaries for a period of less than one (1) year. Subject to the provisions of the Plan including Section 6 below, the Committee shall have the sole and complete authority to determine the exercise price per share for an Option and the terms of each Option Agreement, which may be different for each Optionee. 6. TERMS AND CONDITIONS OF OPTIONS. Any Option granted under the Plan shall be evidenced by an Option Agreement executed by the Company and the Optionee and shall contain terms and conditions not inconsistent with the following limitations and conditions: (a) EXERCISE PRICE. Each Option shall represent the right to purchase one or more Common Shares at a purchase price per share set forth in the Option Agreement. (b) PERIOD OF OPTION. The term of each Option shall be ten (10) years from the Date of Grant of such Option subject to earlier termination and expiration as provided in Section 6(h), in the Option Agreement or in another agreement to which the Optionee is a party. (c) VESTING OF OPTIONS IN GENERAL. An Option granted under the Plan shall vest in accordance with Subsection (d) below. Any Option which shall have become vested in accordance with said Subsection (d) and which shall not have been previously exercised (a "Vested Option") shall become exercisable in accordance with Section (e) below. 4 5 (d) VESTING SCHEDULE. (i) Unless and to the extent otherwise provided in the Option Agreement, and except as provided by Clause (ii) through Clause (iv) and Subsection 6(h) below, the following schedule (the "Vesting Schedule") shall apply to an Options: Years of Service Since Date of Grant Vested Options 0 (On Date of Grant) 0% 3 100% (ii) ACCELERATED VESTING FOR INITIAL OPTIONS. Notwithstanding the Vesting Schedule above, but only if and to the extent provided by the provisions of the applicable Option Agreement, an Initial Option granted hereunder may vest upon the Date of Grant, or upon such other time or times as provided under the provisions of the applicable Option Agreement. (iii) ACCELERATED VESTING UPON OCCURRENCE OF REALIZATION EVENT. Notwithstanding the Vesting Schedule above but subject to the provisions of the applicable Option Agreement, upon occurrence of a Realization Event, each outstanding Option (including any outstanding Initial Option) shall become fully vested as of a date immediately prior to the occurrence of such Realization Event. The Committee shall notify the Optionee of the occurrence of a Realization Event within a reasonable period of time. (iv) FULL DISCRETION IN COMMITTEE. No provision of this Section 6(d) shall impair the Committee's authority to accelerate the vesting of any outstanding Option at any time, or to provide in any Option Agreement for provisions that differ from the provisions set forth in this Section (d) relating to vesting of Options (including Initial Options) upon the occurrence of a Realization Event. (e) EXERCISE OF VESTED OPTIONS. Unless and to the extent otherwise provided in the applicable Option Agreement and subject to Section 6(h) below, each Vested Option shall be exercisable at such time or times throughout a period commencing upon the earlier of [a] the occurrence of a Realization Event, or [b] the expiration of five (5) years from the Date of Grant, and ending upon the expiration or termination of such Option as set forth herein or as set forth in the applicable Option Agreement; provided, however, that no provision of this Section 6(e) shall impair the Committee's authority to accelerate the exercisability of any outstanding Vested Option at any time, or to provide in any Option Agreement for provisions that differ from the provisions set forth in this Section (e) relating to exercisability upon the expiration of five (5) years from the Date of Grant or upon the occurrence of a Realization Event. The Committee may impose in any Option Agreement such conditions with respect to the exercise of each Vested Option as it may deem necessary or advisable. 5 6 (f) SHAREHOLDER RIGHTS. Each Optionee shall, if requested by the Company on or after the Date of Grant, execute and become a party to a shareholders agreement or a similar type of agreement with such provisions regarding shareholder matters as the Company considers appropriate. An Optionee shall not have any of the rights of a shareholder of the Company in respect of the Common Shares subject to an Option until or unless certificates evidencing the Common Shares purchased pursuant to the exercise of such Option are properly delivered to such Optionee. (g) NONTRANSFERABILITY. Except as otherwise provided in the Option Agreement to which the Optionee is a party and notwithstanding any other provision of this Plan or of any shareholders agreement to which the Optionee is a party, no Option shall be transferable or assignable by an Optionee, other than by will or the laws of descent and distribution, and each such Option shall be exercisable, during the Optionee's lifetime, only by such Optionee. (h) CERTAIN FORFEITURES AND REPURCHASES OF OPTIONS. (i) Unless otherwise expressly provided in the Option Agreement or in another agreement between the Company and the Optionee, upon the termination of an Optionee's employment for any reason other than by reason of death of the Optionee, Disability or Retirement, any Option (whether or not then a Vested Option and whether or not then exercisable) held by such Optionee shall be deemed immediately forfeited and cancelled without any payment or consideration being due from the Company. (ii) Unless otherwise expressly provided in the Option Agreement or in another agreement between the Company and the Optionee, upon termination of an Optionee's employment with the Company by reason of death of the Optionee, Disability or Retirement, any Option held by such Optionee which is not a Vested Option shall be deemed immediately forfeited and cancelled and any Vested Option held by the Optionee shall, at the Company's election at any time after such termination, be subject to purchase by the Company for an amount equal to the Fair Market Value of such Vested Option on the repurchase date. In the event the Fair Market Value of a Vested Option shall be zero or less, the repurchase of such Vested Option shall be effected by the delivery by the Company to the Optionee or his Successor, as appropriate, of a written notice stating that the Fair Market Value is zero and that such Vested Option is cancelled. If the Company elects to purchase a Vested Option pursuant to this Section 6(h), the Company shall deliver written notice (a "Purchase Notice") to such Optionee or such Optionee's Successor, as appropriate, to such effect. Upon receipt of any Purchase Notice each Vested Option subject to being purchased shall be deemed to be expired and cancelled automatically upon receipt of the Purchase Notice and the purchase price. Payment of the purchase price may be made in cash or by certified check. Payment effected through a promissory note of the Company in accordance with the provisions of Section 6(i)(iv) hereof shall be deemed payment in cash for purposes of this Section 6(h). (i) CERTAIN REPURCHASES OF COMMON SHARES. (i) Notwithstanding any other provision of this Plan or any shareholders agreement to which the Optionee is a party but subject to the provisions of any Option Agreement, upon the termination of an Optionee's employment prior to 6 7 an initial Public Offering by the Company, the Company may elect, at any time after such termination and prior to such Public Offering, to require such Optionee or his Successor to sell to the Company, and such Optionee or such Successor shall sell, all Common Shares acquired as a result of the exercise of an Option and owned by such Optionee and Successor in accordance with this Section 6(i). The price at which such Surrendered Shares (as defined in Section 6(i)(iii)) may be repurchased shall be determined as follows: (1) in the case of a repurchase arising from a termination under the circumstances set forth in Section 6(h)(i), an amount equal to the product of (x) the lower of (A) the exercise price for the Option pursuant to which the Common Shares were purchased and (13) the Fair Market Value of a Common Share as of the date of such termination of employment multiplied by (y) the number of Common Shares so repurchased, and (2) in other cases, an amount equal to the product of Fair Market Value of a Common Share as of the termination date multiplied by the number of Common Shares repurchased. (ii) If the Company elects to exercise its right to require any Optionee or any Optionee's Successor to sell Common Shares pursuant to this Section 6(i), the Company shall deliver written notice (a "Repurchase Notice") to such Optionee or such Successor to such effect. (iii) The Common Shares specified in the Repurchase Notice as being subject to repurchase (collectively, "Surrendered Shares") shall be surrendered for repurchase within ten (10) business days of the date of such receipt of such notice (the "Repurchase Date"). On the Repurchase Date, the Optionee or the Optionee's Successor selling such Surrendered Shares (the "Seller") shall deliver to the Company the certificate or certificates representing the Surrendered Shares owned by such Seller on such date against delivery by the Company of the repurchase amount to such Seller, which may be paid at the election of the Company, in cash or by certified check, or, in the event the Company is prohibited from making payment with cash as a result of a credit agreement or debt obligation binding upon the Company, by a promissory note issued by the Company (a "Payment Note") payable to the order of the Seller. All certificates for Surrendered Shares shall be duly endorsed in favor of the Company by the Seller in whose name such certificate or certificates is registered or accompanied by a duly executed stock or security assignment in favor of the Company with the signature(s) thereon guaranteed by a commercial bank or trust company or a member of a national securities exchange or the National Association of Securities Dealers, Inc. If any Seller shall fail to deliver such certificate or certificates (or evidence) to the Company within the time required, the Company shall cause its books and records to show that the Surrendered Shares are bound by the provisions of this Section 6(i) of the Plan and that the Surrendered Shares, until transferred to the Company, shall not be entitled to any proxy, dividend or other rights from the date by which such certificate or certificates should have been delivered to the Company. (iv) Each Payment Note shall (A) be payable to the order of the Seller, (B) be issued and dated the Repurchase Date, (C) be in a principal amount equal to the repurchase price of such Surrendered Shares and (D) mature on demand or at a stated maturity date. 7 8 Each Payment Note shall bear interest in respect of the unpaid principal amount of such Payment Note from the Repurchase Date to the maturity date thereof at a rate per annum equal to the then-current yield to maturity on United States treasury securities of comparable maturity, as determined in good faith by the Company, plus 100 basis points. (v) The Company shall have the right to resell to any Person any Surrendered Shares received from a Seller pursuant to this Section 6(i), whether or not the applicable Repurchase Price has been paid to such Seller; PROVIDED that any such sale or other disposition by the Company of its obligation to pay the applicable repurchase price for such Surrendered Shares. (j) OTHER PROVISIONS. The grant of any Option may also be subject to such other provisions (whether or not applicable to any Option granted to any other Optionee) as the Committee deems appropriate, including provisions to assist the Optionee in financing the acquisition of Common Shares, provisions for the forfeiture of, or restrictions on resale or other disposition of, shares acquired under any Option in addition to those provisions set forth in Section 8 hereof or in any shareholders agreement to which the Optionee is a party, provisions giving the Company the right to purchase Options in circumstances other than those described in Section 6(h) and to repurchase shares acquired under any Option in the event the Optionee elects to dispose of such shares, provisions to comply with federal and state securities laws, understandings or conditions as to the Optionee's employment in addition to those specifically provided for under the Plan and provisions accelerating the vesting of any Option upon the occurrence of specified events or otherwise in the discretion of the Committee. 7. ADJUSTMENT PROVISIONS. (a) If the Company shall at any time change the number of issued Common Shares without new consideration to it (by stock dividends, stock splits, or similar transactions), the total number of Common Shares reserved for issuance under this Plan and the number of such shares covered by each outstanding Option shall be adjusted so that the aggregate consideration payable by the Optionee upon exercise, and the benefit intended to be provided under each such Option immediately before and immediately after such adjustment, shall be maintained. (b) In the case of any merger, recapitalization, consolidation, split-up, spin-off, repurchase, distribution or similar transaction affecting the Common Shares, the Committee shall take such action as in its sole discretion it deems appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan and the Options granted hereunder. (c) Notwithstanding any other provision of this Plan, and Without affecting the number of Common Shares reserved or available hereunder, the Committee may authorize the issuance or assumption of Options or similar rights in connection with any merger, consolidation, acquisition of property or stock, or reorganization, whether or not the Company is a surviving or continuing corporation, upon such terms and conditions as it may deem appropriate. 8 9 (d) Notwithstanding any other provision of this Plan, the payment to any Optionee at any time of an amount equal to the excess, if any, of the Fair Market Value at such time of the number of Common Shares subject to such Option over the aggregate exercise price of such Option, in consideration of the cancellation thereof, shall extinguish any rights of the holder of such Option in connection therewith. (e) Notwithstanding any other provision of this Plan, in the event of the dissolution or liquidation of the Company, any Option granted under the Plan shall terminate as of a date to be fixed by the Committee, provided that not less than thirty (30) days' written notice of the date so fixed shall be given to each Optionee, and each such Optionee shall have the right during such period to exercise his Option as to all or any part of the Common Shares covered thereby. 8. RESTRICTIONS ON COMMON SHARES ISSUED. The exercise of each Option shall be subject to the condition that if at any time the Company shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any Common Share otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the consent or approval of any regulatory body, is necessary or desirable as a condition of, or in connection with, such exercise or the delivery or purchase of Common Shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Company. 9. NO RIGHT TO CONTINUED EMPLOYMENT. The granting of an Option to any person does not alter in any way the rights of the Company to terminate such Optionee's employment at any time for any reason nor does it confer upon such person any rights or privileges to continue employment or otherwise except as specifically provided for in the Plan. 10. AMENDMENT, SUSPENSION, AND TERMINATION OF PLAN. The Board may at any time suspend or terminate the Plan or may amend it from time to time in such respects as the Board may deem advisable, in the best interests of the Company and in accordance with the purposes of the Plan; provided, however, that without approval by the holders of a majority of the securities of the Company entitled to vote, no such amendments shall (i) except as specified in Section 7, increase the maximum number of Common Shares with respect to which Options may be granted under the Plan, or (ii) change the provisions of the second sentence of this Section 10 relating to the term of this Plan or (iii) change the class of persons eligible to receive Options under the Plan. Unless the Plan shall theretofore have been terminated by the Board, the Plan shall terminate 10 years after the Effective Date of the Plan. No Option may be granted during any suspension or after the termination of the Plan. No amendment, suspension, or termination of the Plan shall, without an Optionee's consent, impair any of the rights or obligations under any Option theretofore granted to such Optionee under the Plan. 11. WITHHOLDING. The Company may establish appropriate procedures to provide for payment of such income and other taxes as may be required by law to be paid or withheld in 9 10 connection with the exercise of Options, and to ensure that the Company receives prompt advice concerning the occurrence of any event that may create, or affect the timing or amount of, any obligation to pay or withhold such taxes or that may make available to the Company any tax deduction resulting from such occurrence. Without limiting the generality of the foregoing, an Optionee may be given the opportunity to elect to have Common Shares withheld to satisfy withholding obligations. As adopted by the Board of Directors December 9, 1993, effective as of December 8, 1993. AMERICAN ITALIAN PASTA COMPANY By: /s/ Kevin Steingart -------------------------------------- Kevin Steingart, Senior Vice President 10 EX-23.1 8 CONSENT OF ERNST AND YOUNG 1 EXHIBIT 23.1 We consent to the references to our firm under the captions "Experts" and "Selected Financial Data" and to the use of our report dated July 25, 1997, in the Registration Statement (Form S-1 No. 333- ) and related Prospectus of American Italian Pasta Company for the registration of shares of its common stock. Ernst & Young LLP Kansas City, Missouri ______________________________________________________________________________ The foregoing consent is in the form that will be signed upon the completion of the recapitalization and restatement of capital accounts and the calculation of earnings per share amounts as described in Note 12 to the financial statements. /s/ Ernst & Young LLP Kansas City, Missouri August 4, 1997 EX-27.1 9 FDS
5 This schedule contains summary information extracted from the balance sheet and statement of operations and is qualified in its entirety by reference to such financial statements. 9-MOS 9-MOS SEP-30-1996 JUN-30-1997 SEP-30-1996 JUN-30-1997 1,818 2,612 0 0 12,494 11,616 0 0 14,374 11,619 30,834 28,261 127,000 138,049 23,247 27,790 143,157 146,110 32,435 14,985 0 0 0 0 0 0 10 15 17,428 41,610 143,157 146,110 92,074 93,616 92,074 93,616 68,555 67,821 82,984 79,357 0 0 0 0 8,023 7,800 (1,738) 3,604 (656) 1,375 (1,082) 2,229 0 0 (1,647) 0 0 0 (2,729) 2,229 0 0 0 0
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