EXHIBIT 10.16
VIA FACSIMILE
November 12, 1998
Xx. Xxxxxxx X. Xxxxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Re: Proposal Regarding Dakota Growers
Pasta Company Series D Preferred Stock
Dear Xxx:
Based on your recent conversations with Xxx XxXxxx and deliberations by the
Board of Directors, Xxxxxx Xxxxxxx Pasta Company (the "Company") is pleased to
present this proposed agreement from the Company with respect to the Series D
Preferred Stock held by the former shareholders of Xxxxx Xxxxxx (the "Preferred
Stock").
The Company hereby agrees to provide certain registration rights to the
Preferred Stockholders upon the terms and conditions contained in this letter
agreement. For purposes of this letter agreement only, Preferred Stockholders
who share beneficial ownership of Preferred Stock with an employee of the
Company will be classified as employees and Preferred Stockholders who share
beneficial ownership of Preferred Stock with a non-employee will be classified
as a non-employee. The Company's agreement is made on the following terms and
conditions:
1. The Company and the Preferred Stockholders agree that the 23,038 shares of
Preferred Stock issued by the Company on the basis of the "Net Debt"
calculation (as established under the Stock Purchase Agreement pursuant to
which the Company acquired Primo Piatto) will not be subject to further
adjustment on the basis of any claims arising under the terms of the Stock
Purchase Agreement. In addition, any shares of such Preferred Stock now
held in escrow pursuant to the terms and conditions of the Stock Purchase
Agreement will be released from such escrow effective upon the last to
occur of the following events: (i) execution by all of the Preferred
Stockholders of this letter agreement, (ii) execution of the registration
rights agreement described below by each Preferred Stockholder who does not
agree, pursuant to this letter agreement, to offer and sell all shares of
Equity Stock issuable upon conversion of all of the Preferred Stock held by
such shareholder, (iii) execution by
Xx. Xxxxxxx X. Xxxxxxx
November 12, 1998
Page 2
Xx. Xxxxx Xxxxx of the non-compete agreement described below and (iv)
execution by each of the Preferred Stockholders of the mutual release
described below.
2. The conversion ratio of the Preferred Stock will be adjusted to a 3 for 2
basis. As a result, the Preferred Stock, in the aggregate, can be
converted into a total of 345,570 shares of the Company's Equity Stock.
Those shares of Equity Stock which would be issued upon conversion of the
Preferred Stock and which are offered for sale by the Preferred
Stockholders in the Company's offering are referred to in this letter as
"Conversion Stock".
3. The Conversion Stock will be registered with the Securities and Exchange
Commission and offered for sale in the Company's planned offering. The
Conversion Stock will be offered and sold in Pools 1 and 2 of the Company's
offering, at a price of $7.50 per share. If all of the Conversion Shares
offered by the Preferred Stockholders are not sold in Pools 1 and 2 of the
offering in accordance with the procedures described below, the remaining
Conversion Shares will not be included in Pool 3 of the Company's offering,
but may be purchased by the Company in accordance with the purchase option
described below. All Conversion Stock held by non-employees will be
included in the offering; Conversion Stock held by employees must be
included to the extent that such shares resulted from the adjustment of the
Preferred Stock's conversion ratio described above. Each employee may
offer and sell additional shares of the Equity Stock issuable upon
conversion of the Preferred Stock at his or her discretion. By executing
this letter agreement and indicating the number of shares of Conversion
Stock to be offered and sold in the space next to the appropriate signature
line below, each Preferred Stockholder hereby irrevocably agrees to offer
and sell such shares of Conversion Stock in accordance with the terms and
conditions set forth in this letter agreement (or to sell the associated
Preferred Stock in accordance with the terms and conditions of this letter
agreement).
4. In the offering, the sale of the Equity Stock to be offered and sold by the
Company and the Conversion Stock to be offered and sold by the Preferred
Stockholders, will be accomplished as follows:
(a) The Company agrees to reduce the number of shares of Equity Stock it
will offer and sell for its account by the aggregate number of
Conversion Shares offered by the Preferred Stockholders. For example,
if the Preferred Stockholders in the aggregate offer all 345,570
shares of Conversion Stock for sale in the offering, the Company will
reduce the total number of shares of Equity Stock it will offer from
3,679,000 to 3,333,430 shares of Equity Stock.
(b) The Company agrees to include the Conversion Shares offered by the
Preferred Stockholders in Pools 1 and 2 on a pro-rata basis with the
shares offered by the
Xx. Xxxxxxx X. Xxxxxxx
November 12, 1998
Page 3
Company(determined by calculating the portions of the total
offering of 3,679,000 shares to be offered and sold by the Company
and the Preferred Stockholder group, respectively). At such time
during the offering as the Company has obtained net proceeds of
$14,000,000 through the offer and sale of shares of Equity Stock
for its account in Pools 1 and 2, subscriptions for shares in the
offering will no longer be allocated pro rata, but the remainder of
the Preferred Stockholders' Conversion Stock will be given priority
and sold on a "first out" basis until all Preferred Stockholders
have sold all of the Conversion Stock they requested be included in
the offering. After subscriptions have been received for all
Conversion Stock offered by the Preferred Stockholders, all
remaining sales in the offering would accrue to the Company.
5. The sale of either the Conversion Stock or the associated Preferred Stock
pursuant to this letter agreement will be completed only after February 23,
1999.
6. Any proceeds received by a holder of Preferred Stock from the sale of
Conversion Stock will reduce, on a dollar for dollar basis, the amount of
any loan to be provided by the Company pursuant to Section 2.4 of the Stock
Purchase Agreement. If the offering is canceled or delayed or if a holder
of Preferred Stock does not receive adequate proceeds from the sale of
Conversion Stock or Preferred Stock pursuant to this letter agreement, the
Company will provide that shareholder with a loan in accordance with
Section 2.4 of the Stock Purchase Agreement.
7. Each non-employee Preferred Stockholder hereby agrees that, without the
prior written consent of the Company, he or she shall not re-acquire shares
in the Company at any time in the future.
8. Participation of the Conversion Stock in the Company's offering will be
subject to the following conditions:
* To the extent that the Conversion Stock offered for sale by the
Preferred Stockholders is not sold to the Company's members in
Pools 1 or 2 of the Company's stock offering in accordance with the
provisions described above, the Company at its discretion may
either (a) elect to purchase the Preferred Stock associated with
the unsold Conversion Stock at a purchase price of $112.50 per
share, (b) elect not to repurchase such Preferred Stock or (c)
elect to purchase, at a purchase price of $112.50 per share, all of
the Preferred Stock held by parties who are not employees of the
Company and such portion of the Preferred Stock held by the
Company's employees as the Company, in its discretion, may elect.
The Company's right to
Xx. Xxxxxxx X. Xxxxxxx
November 12, 1998
Page 4
purchase stock pursuant to this provision will expire ninety (90)
days after the close of the Company's offering.
* That there be no material adverse change in the business of the
Company, as determined by the Company, prior to closing of the
contemplated transactions.
* The Company and the Preferred Stockholders offering and selling
Conversion Stock and/or Preferred Stock will, prior to or
concurrent with the completion of the sale of such Conversion Stock
or Preferred Stock, enter into a mutual release of all claims and
such other documents and agreements as are necessary to complete
the transactions contemplated by this letter agreement. In
addition, in order to comply with applicable securities laws and
regulations governing the Company's offering, each Preferred
Stockholder agrees not to engage in any public comment or other
public distribution of information regarding either the Company or
its offering prior to the completion of the offering and the
transactions contemplated by this letter agreement.
* Xx. Xxxxx Xxxxx will agree with the Company, in a separate
non-compete agreement, that he will not, directly or indirectly,
for a period of two (2) years from the closing of the purchase,
participate in the activities of or provide services to any
business that manufactures or markets dry pasta products in
competition with the Company.
* The Company and those Preferred Stockholders who do not sell all
shares of their Conversion Stock in the offering or all shares of
their Preferred Stock to the Company pursuant to the purchase
option described above will enter into a "Registration Rights
Agreement" pursuant to which the Company shall grant those
Preferred Stockholders "piggyback" registration rights with respect
to the Equity Stock underlying any remaining shares of Preferred
Stock. Such registration rights shall be available with respect to
registered offerings initiated by the Company during a period of
three (3) years from the date of completion of the Company's
current offering. Such registration rights agreement shall contain
customary provisions applicable to "piggyback" registration rights,
including provisions on matters such as the costs of registration,
indemnification and notices.
If the Preferred Stockholders are in agreement with the terms and conditions
stated above, please arrange for each to sign below in the spaces provided
and to insert the number of shares of Conversion Stock to be offered and sold
by each Preferred Stockholder. Given the schedule for the Company's
offering and the need to file appropriate amendments to the Company's
registration statement, the Company must receive a response from the holders
of preferred stock no later than
Xx. Xxxxxxx X. Xxxxxxx
November 12, 1998
Page 5
5:00 p.m. on Friday, November 13, 1998. If a response is not received by Xxx
XxXxxx at his office by that time, this Company's offer contained in this
letter will terminate.
We look forward to your favorable response.
Sincerely,
Dakota Growers Pasta Company
By
--------------------------------
Xxxx X. Xxxxxxxxx XXX, Chairman
The undersigned Preferred Stockholders agree to the terms and conditions
described above and hereby irrevocably agree to offer and sell the number of
shares of Conversion Stock set forth next to each such Preferred Stockholder's
name (or the associated Preferred Stock), all upon the terms and conditions set
forth above.
NUMBER OF SHARES OF CONVERSION STOCK:
-------------------------------------
----------------------------- ________ Shares
Xxxxxxx Xxxxxxx
----------------------------- ________ Shares
Xxxxx Xxxxx
----------------------------- ________ Shares
Xxxxxx Xxxxxxx Xxxxx
Xx. Xxxxxxx X. Xxxxxxx
November 12, 1998
Page 6
NUMBER OF SHARES OF CONVERSION STOCK:
-------------------------------------
----------------------------- ________ Shares
Xxxxxxx Xxxxx
----------------------------- ________ Shares
Xxxx X. Xxxxxx
----------------------------- ________ Shares
Xxxxxx Xxxxxx
----------------------------- ________ Shares
Xxxxxxx Xxxxxx
----------------------------- ________ Shares
Xxxxx X. Xxxxxxx
----------------------------- ________ Shares
Xxx Xxxxxxx
----------------------------- ________ Xxxxxx
Xxxxxx Xxxxxxx
----------------------------- ________ Xxxxxx
Xxxxx Xxxxxxx
----------------------------- ________ Shares
Xxxx Xxxxxxx
----------------------------- ________ Xxxxxx
Xxx Xxxxxxx
----------------------------- ________ Xxxxxx
Xxxxx Xxxxxxxxx
----------------------------- ________ Shares
Xxxx Xxxxxxxxxx
Xx. Xxxxxxx X. Xxxxxxx
November 12, 1998
Page 7
NUMBER OF SHARES OF CONVERSION STOCK:
-------------------------------------
----------------------------- ________ Shares
Xxxxx Xxxxxxx
----------------------------- ________ Shares
Xxxxxx X. Xxxx
----------------------------- ________ Shares
Xxxx Xxxxxxxxx
