Manufacturing And Distribution Agreement

MANUFACTURING AND DISTRIBUTION AGREEMENT


BETWEEN


CPC INTERNATIONAL INC.


AND


AMERICAN ITALIAN PASTA COMPANY


MANUFACTURING AND DISTRIBUTION AGREEMENT


* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT. THE REDACTED MATERIAL HAS BEEN INDICATED WITH AN ASTERISK AND FILED SEPARATELY WITH THE COMMISSION.


2


MANUFACTURING AND DISTRIBUTION AGREEMENT


TABLE OF CONTENTS
PAGE
---- 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 AIPC Guaranteed Maximum Volume . . . . . . . . . . . . . . . . . . . . 1
1.5 Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Budget or Budgeted . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Calculation Period . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Contract Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Contract Year Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Conversion Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Cost Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 CPC Product Specifications . . . . . . . . . . . . . . . . . . . . . . 2
1.13 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15 Direct Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.16 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.17 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.18 Factory Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.19 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.20 Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.21 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.22 Handling and Warehousing Costs . . . . . . . . . . . . . . . . . . . . 3
1.23 Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.24 Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.25 Materials Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.26 Minimum Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.27 Packaging Materials . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.28 Packaging Materials Cost . . . . . . . . . . . . . . . . . . . . . . . 3
1.29 Party or Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.30 Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.31 Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32 Raw Materials Cost . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.33 Semolina Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.34 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.35 Supply/Demand Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.36 Target Volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.37 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.38 Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3


TABLE OF CONTENTS
(CONTINUED)


PAGE
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1.39 Tolling Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.40 Total Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.41 Warehouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 AIPC's Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Location of Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. COMPENSATION AND COST SAVINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Cost Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. PRODUCTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. QUALITY ASSURANCE AND CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. REJECTION PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. PROCESSING AND PACKAGING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9. INVENTORIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1 Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Delivery of Finished Products . . . . . . . . . . . . . . . . . . . . . . . . 10
10. PRODUCT ORDERS/INVOICING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.1 * Invoice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
10.2 Minimum Purchase/Supply Payments . . . . . . . . . . . . . . . . . . . . . . . 11
10.3 Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11. OWNERSHIP/EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.1 Recipes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.2 * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11.3 Third-Party Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11


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TABLE OF CONTENTS
(CONTINUED)


PAGE
---- 12. TITLE AND RISK OF LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13. INDEPENDENT CONTRACTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
14. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
14.1 Mutual Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
14.2 AIPC Service Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.3 No Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.4 CPC Product Specifications Representation . . . . . . . . . . . . . . . . . . . . . . . . 14
14.5 CPC Marks, Ownership and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15. INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.1 AIPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.2 Mutual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15.4 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
16. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
16.1 Without Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
16.2 Termination for Cause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
16.3 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
17. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
18. RECORDS AND AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
18.1 Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
18.2 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
18.3 Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
18.4 Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
19. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
20. TRADEMARKS AND ENDORSEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
20.1 CPC Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
20.2 License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
20.3 Prohibited Use by AIPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
20.4 Prohibited Use by CPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23


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TABLE OF CONTENTS
(CONTINUED)


PAGE
---- 21. GOVERNING LAW AND DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . 23
21.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
21.2 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
21.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
22. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
22.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
22.2 AIPC Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
22.3 CPC Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
22.4 Permitted Assignment by AIPC . . . . . . . . . . . . . . . . . . . . . . . . . . 25
23. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
24. NOTICE OF SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
25. PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
26. CHANGES IN ECONOMIC, TECHNICAL OR BUSINESS CONDITIONS . . . . . . . . . . . . . . . 26
27. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
27.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
27.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
27.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
27.4 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
27.5 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
27.7 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28


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THIS AGREEMENT, made as of the 15th day of April, 1997 (the "Effective Date"), between CPC INTERNATIONAL INC., a Delaware Corporation with its principal office in Englewood Cliffs, New Jersey ("CPC"), and AMERICAN ITALIAN PASTA COMPANY, a Delaware corporation with its principal office in Excelsior Springs, Missouri ("AIPC"). CPC and AIPC are each referred to herein as a "Party" and collectively "Parties."


WITNESSETH:


WHEREAS, AIPC represents to CPC that it has, or will have, the ability and capacity to provide services to produce and package the quality and such quantities of Products to meet the marketing and distribution requirements of CPC, including (i) the purchase, scheduling, receiving and storing of packaging materials; (ii) the supply of raw materials; (iii) the processing and packaging of the Products; and (iv) the shipment of the finished Products to warehouses (as directed by CPC), all in conformity with written quality control and quality assurance requirements and specifications as established by the Parties pursuant to the terms of this Agreement;


WHEREAS, CPC wishes to have AIPC provide such services to CPC; and


WHEREAS, it is the intent of the Parties to establish a relationship whereby over time, CPC will purchase from AIPC and AIPC will produce for CPC, all of CPC's requirements for Mueller's(R) * branded retail long and short pasta and noodle products, subject to the terms hereof and CPC's existing toll packing agreements. *


NOW, THEREFORE, with the intention of being legally bound hereby, the Parties agree as follows:


1. DEFINITIONS


For purposes of this Agreement the following words used herein shall be applied as defined below:


1.1 Act - means the Food, Drug, and Cosmetic Act, 21 U.S.C. Section 301 et. seq., as amended.


1.2 Actual - when used immediately preceding any other term shall mean that it occurs in fact during the referenced period of this Agreement.


1.3 Affiliate - means any United States or Canadian entity controlling, controlled by, or under common control with such Party.


1.4 AIPC Guaranteed Maximum Volume - has the meaning set forth in Section 5.1.3 below.


7


1.5 Applicable Laws - means all applicable federal, state and local laws, ordinances, rules and regulations, and any amendments thereto which are in effect from time to time.

1.6 Budget or Budgeted - when used immediately preceding any other term shall mean that it is estimated for a specified future period of production.


1.7 Calculation Period - has the meaning set forth in the definition of Semolina Cost below.


1.8 Contract Year - the twelve (12) month period commencing on January 1 of each year during the Term hereof; provided, (i) the first Contract Year will begin as of the date set forth in a written notice by AIPC to CPC notifying CPC (after successful start-up and testing has been accomplished) that AIPC is ready, willing and able to begin production of the Products as of that date (which is targeted to occur on or about *), and (ii) the first Contract Year will end December 31, 1998.


1.9 Contract Year Plan - means the plan established under Section 5.2.1 established by the Parties, as adjusted from time to time as provided herein.


1.10 Conversion Cost - the sum of * , all as defined herein.


1.11 Cost Savings - has the meaning set forth in Section 3.2.1 below.


1.12 CPC Product Specifications - has the meaning set forth in Section 14.4 below.


1.13 Damages - means all claims, actions, liability, loss, damage, expense, including reasonable attorney's fees and expenses.

1.14 Depreciation - depreciation and amortization expenses of AIPC's buildings and improvements, pasta production and packaging equipment, palletization equipment, warehouse building and equipment, office furnishings and equipment and the like allocable to Products produced by AIPC hereunder.


1.15 Direct Labor - the cost of press, packaging and general labor to produce the Products.


1.16 Effective Date - means the date set forth in the first paragraph of this Agreement.


1.17 Facility - has the meaning set forth in Section 2.1 below, and shall include any other location added pursuant to an amendment to this Agreement.


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1.18 Factory Overhead - when referring to Product manufactured in:


1.18.1 Columbia, South Carolina, AIPC's cost * .


1.18.2 Excelsior Springs, Missouri, AIPC's cost * .


1.19 Force Majeure - has the meaning set forth in Section 17.2 below.


1.20 Forecasts - means the forecasts provided under Section 5.2 below.


1.21 GAAP - means generally accepted accounting principles, as consistently applied by AIPC.


1.22 Handling and Warehousing Costs - means AIPC's expenses of warehousing Products including * in each case related to Products produced by AIPC hereunder. The terms of such warehousing costs shall be governed by the Operating Agreement by and between AIPC and the Lanter Company in the form of EXHIBIT 1.22 attached hereto.

1.23 Insolvency Event - has the meaning set forth in Section 16.2.4 below.


1.24 Marks - means CPC's respective trade names and trade marks identified in SCHEDULE 14.5 hereto.


1.25 Materials Cost - the sum of Raw Materials Cost plus Packaging Materials Cost.


1.26 Minimum Volume - has the meaning set forth in Section 5.1.2 below.


1.27 Packaging Materials - includes, but is not limited to packaging film, labels, bags, folding cartons, corrugate shippers, liners, stretch wrap, pallets, ink, glue, tape and slip sheets.

1.28 Packaging Materials Cost - the delivered cost to AIPC of Packaging Materials consumed in packaging the Products, including a provision for loss allowance agreed to by the Parties.


1.29 Party or Parties - has the meaning set forth in the first paragraph of this Agreement.


1.30 Product - means all of CPC's Mueller's(R) * branded dry pasta products * .


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1.31 Raw Materials - means all ingredients used to manufacture the Products, including but not limited to, semolina, first clear flour, egg powder, spinach powder, tomato powder and enrichments, and any other purchased raw materials.


1.32 Raw Materials Cost - the Actual delivered cost to AIPC of the Raw Materials including, but not limited to Semolina Cost.


1.33 Semolina Cost - means the cost of semolina at the applicable Facility. This cost for any period of time (the "Calculation Period") shall be calculated as follows: *

1.34 Services - has the meaning set forth in Section 2.1 below.


1.35 Supply/Demand Plan - has the meaning set forth in Section 5.2.1 below.


1.36 Target Volume - has the meaning set forth in Section 5.1.3 below.


1.37 Term - has the meaning set forth in Section 4 below. "Term" includes the "initial Term" and extensions thereof.


1.38 Termination Fee - means the fee payable by CPC under Section 16.1.1 below.


1.39 Tolling Fee - means * .


1.40 Total Cost - the sum of Materials Cost plus Conversion Cost, determined in accordance with GAAP.


1.41 Warehouse - means a (i) warehouse facility adjacent to a Facility, or (ii) any other warehouse facility designated by AIPC from time to time for the storage of the Products pending delivery to a carrier for shipment to CPC, which warehouse facility has been approved by CPC for the storage of Products.

2. SERVICES


2.1 AIPC's Services. In consideration for the compensation to be paid to AIPC as set forth herein, AIPC hereby agrees to perform the following services (the "Services") for CPC at its Excelsior Springs, Missouri and Columbia, South Carolina facilities (the "Facilities") on the terms and conditions set forth herein: * . All of the above must be in accordance with the CPC Product Specifications set forth and included in EXHIBIT A attached hereto, as may be amended by the mutual written consent of the Parties and other provisions of this Agreement.


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2.2 Location of Services. AIPC at its discretion may produce the Products at either Facility. However, AIPC will strive for lowest Total Cost. If a change in Facility allocation for production from the Contract Year Plan would incur additional costs, AIPC will obtain CPC's prior written consent.

3. COMPENSATION AND COST SAVINGS


3.1 Compensation. In exchange for the Services rendered by AIPC to CPC hereunder, CPC shall pay to AIPC compensation in an amount equal to * , as invoiced and provided in Section 10.1 below. Compensation will be adjusted quarterly as provided in Section 3.2.2 below.


3.2 Cost Savings. "Cost Savings" are to be allocated to AIPC and CPC as set forth below.


3.2.1 Definition and Allocation. "Cost Savings" are savings generated by: *


3.2.2 Computation. AIPC will reconcile, quarterly, Budgeted Materials Cost and Budgeted Conversion Cost with Actual Materials Cost and Actual Conversion Cost, respectively, as of March 31, June 30, September 30 and December 31 (or the actual date on which AIPC closes its quarterly financial records) during each Contract Year. These calculations will be computed on a * basis for Products purchased during such quarter.

If Actual Conversion Cost exceeds Budgeted Conversion Cost during the quarter, CPC will pay that amount to AIPC within * of the date of an invoice from AIPC. If the Actual Conversion Cost is less than Budgeted Conversion Cost during the quarter, such savings will be allocated between the Parties pursuant to Section 3.2.1. above, and AIPC will refund CPC's share of such Cost Savings to CPC within * from the date such calculation is completed by AIPC; provided AIPC will complete this calculation no later than * after the closing date of the quarter under review.

Similarly, if Actual Materials Cost exceeds Budgeted Materials Cost during the quarter, CPC will pay that amount to AIPC within * of the date of an invoice from AIPC. If Actual Materials Cost is less than Budgeted Materials Cost, AIPC will refund such savings to CPC within * from the date such calculation is completed by AIPC; provided AIPC will complete this calculation no later than * after the closing date of the quarter under review.

Amounts payable by, and to, CPC hereunder may be netted by AIPC, before paying, or submitting an invoice to, CPC, as the case may be.


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4. TERM


This Agreement shall be effective as of the Effective Date, with the initial Term to begin as of the first day of the first Contract Year and shall continue for a period of nine (9) Contract Years unless earlier terminated pursuant to the terms of this Agreement. At CPC's sole option the Term may be extended by CPC during the seventh Contract Year for an additional three (3) Contract Years beyond the initial Term ending December 31, 2006 on the same terms and conditions, other than economic terms and conditions which will be negotiable, by delivering a written notice of CPC's desire to exercise this option to AIPC before * . If the Parties are unable to reach a written agreement on the economic terms and conditions applicable to the extended Term on or before * , the extension option shall expire, and this Agreement will expire upon and including December 31, 2006 and the original terms will remain in effect through the expiration date.

5. PRODUCTION PLANS


The Parties hereby acknowledge that CPC's current demand for the Products is approximately * of Product per Contract Year and that AIPC is undertaking a significant expansion of the Facilities to accommodate the production of up to approximately * of Product per Contract Year to satisfy CPC's demand for the Products. Notwithstanding, AIPC acknowledges that CPC desires to increase demand for the Products to an amount in excess of * of Product per Contract Year, and CPC acknowledges that AIPC will need substantial lead time and capital investment to satisfy such increases in demand for the Products and will use all commercially reasonable efforts to provide to AIPC at least * advance written notice of significant increases in the demand for the Products. In consideration of the foregoing, the Parties agree to establish the following Product volume commitments to apply for each Contract Year until adjusted as provided below.

CPC will provide to AIPC at least * advance written notice with respect to significant changes in product mix/cuts or at least * advance written notice of changes in volume requirements exceeding the applicable AIPC Guaranteed Maximum Volume, as the case may be. If AIPC is unable to successfully produce a particular cut or volume of product (or Products) requested by CPC, AIPC shall promptly so notify CPC in writing. CPC shall then have the right to develop an alternative ...