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Amended & Restated Stockholders Agreement

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AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT


September __, 1997


among


American Italian Pasta Company


and


Certain of its Shareholders 2


THIS AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT dated as of September __, 1997 ("Agreement") is by and among American Italian Pasta Company, a Delaware corporation (the "Company"), and each of the other signatories listed on the signature pages hereof.


W I T N E S S E T H:


WHEREAS, the Company, The Morgan Stanley Leveraged Equity Fund II, L.P., a Delaware limited partnership ("MSLEF II"), Morgan Stanley Capital Partners III, L.P. ("MSCP"), Morgan Stanley Capital Investors, L.P. and MSCP III 892 Investors, L.P., each a Delaware limited partnership (collectively, the "MSCP Funds" and, together with MSLEF II, collectively, the "MS Shareholders"), and each of the other signatories hereto are parties to a Shareholders Agreement dated as of October 30, 1992 (the "Original Agreement"), as amended by Amendment No. 1 to Shareholders Agreement dated as of March 8, 1995, Amendment No. 2 to Shareholders Agreement dated as of April 13, 1995, and Amendment No. 3 to Shareholders Agreement dated as of April 15, 1997 (as so amended, the "Amended Original Agreement");


WHEREAS, the Shareholders (as defined below) presently own the number of shares of Class A common stock, par value $.01 per share (the "Old Class A Common Stock"), and/or shares of common stock, no par value per share (the "Old Common Stock" and with the Old Class A Common Stock collectively, the "Old Stock"), of the Company set forth opposite their respective names on Exhibit A attached to this Agreement;


WHEREAS, the Company expects to consummate its IPO (as defined herein) shortly following the date hereof;


WHEREAS, in connection with its IPO, the Company will amend and restate its Certificate of Incorporation and effect a recapitalization pursuant to which (i) each outstanding share of Old Class A Common Stock and Old Common Stock will be converted into one share of the Class A Convertible Common Stock, par value $.001 per share, of the Company (the "Class A Common Stock"); (ii) the MS Shareholders will convert certain of their shares of Class A Common Stock into shares of the Class B Convertible Non-Voting Common Stock, par value $.001 per share, of the Company (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"); and (iii) each outstanding share of Common Stock will be split into ___ shares;


WHEREAS, in connection with the IPO, the Company and the Shareholders wish to further amend and restate in its entirety the Amended Original Agreement; and


WHEREAS, the execution of this Agreement constitutes the consent of the Company and each of the Shareholders to the amendment and restatement of the Amended Original Agreement effective immediately after the IPO Closing (as defined below), thereby binding all the Shareholders to this Agreement in accordance with Section 7.4 of the Amended Original Agreement;


3


NOW, THEREFORE, in consideration of the mutual agreements and covenants hereinafter set forth, the parties hereto hereby agree as follows:


ARTICLE 1
DEFINITIONS


1.1 Definitions. (a) The following terms, as used in this Agreement, have the following meanings:


"Adverse Person" means, as determined in the sole discretion of the Board, (i) any transferee that intends to cause, or is reasonably likely to cause, or whose ownership of Common Stock would cause an adverse impact on the business, interests or prospects of the Company or any Shareholder or (ii) any transferee that is a competitor or supplier of the Company or an Affiliate of any such competitor or supplier.


"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 shareholder of the Company shall be deemed an Affiliate of any other shareholder 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.


"Allotment" means (i) with respect to calendar year 1997, 28,323 shares of Common Stock; (ii) with respect to calendar year 1998, 35,000 shares of Common Stock minus the number of shares of Common Stock transferred by Schroeder in 1997; (iii) with respect to calendar year 1999, 58,494 shares of Common Stock minus the aggregate number of shares of Common Stock transferred by Schroeder in 1997 and 1998 and (iv) with respect to the calendar year 2000, 79,544 shares of Common Stock, minus the aggregate number of shares of Common Stock transferred by Schroeder in 1997, 1998 and 1999.


"Baum" means George K. Baum Group, Inc, George K. Baum Capital Partners, L.P., George K. Baum Employee Equity Fund, L.P., or Excelsior Investors, L.L.C.


"Baum Affiliate" means any Person included within the definition of "Baum", or any Affiliate of such Person.


"Board" means the board of directors of the Company.


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"Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close.


"Business Plan" has the meaning specified in Section 2.5(b) of this Agreement.


"Bylaws" means the bylaws of the Company, as amended from time to time.


"Certificate of Incorporation" means the Certificate of Incorporation of the Company, as amended from time to time.


"Chairman" means the chairman of the board of directors of the Company.


"Chief Executive Officer" means the chief executive officer of the Company.


"Citicorp" means Citicorp Venture Capital, Ltd. or CCT Partners III, L.P.


"Class A Common Stock" has the meaning specified in the recitals to this Agreement.


"Class B Common Stock" has the meaning specified in the recitals to this Agreement.


"Code" means the Internal Revenue Code of 1986, as amended.


"Common Stock" has the meaning specified in the recitals to this Agreement.


"Confidential Information" has the meaning specified in Section 6.1(b) of this Agreement.


"Director" means any member of the Board.


"Disadvantageous Condition" has the meaning specified in Section 5.1(a) of this Agreement.


"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.


"Exchange Act" means the Securities Exchange Act of 1934, as amended.


"Existing Shareholders" means Thompson and Citicorp.


"Fully Diluted" means, with respect to Common Stock, all outstanding shares of Common Stock, shares of Common Stock issuable in respect of securities convertible into or exchangeable for Common Stock, and shares of Common Stock issuable upon exercise of stock appreciation rights or options, warrants and other rights to purchase or subscribe for Common Stock or securities convertible into or exchangeable for Common Stock.


"IPO" means the Company's first Underwritten Offering.


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"IPO Closing" means the consummation of the IPO.


"IPO Closing Date" means the date of the IPO Closing.


"Losses" means any losses, claims, damages, liabilities or expenses.


"Major Acquisition" means strategic acquisition of, or investment in the assets or a business of, another Person, which acquisition or investment has a fair market value of at least $30 million.


"Maximum Offering Size" has the meaning specified in Section 5.1(f) of this Agreement.


"Minority Selling Shareholders" means, with respect to any registration of Registrable Stock under the Securities Act, the Minority Shareholders who exercise their rights under Sections 5.1(a), 5.1(b) or 5.2 of this Agreement to have Registrable Stock included in such registration.


"Minority Shareholders" means the Shareholders and their Permitted Transferees, other than the MS Shareholders and the Permitted Transferees of the MS Shareholders.


"MS Percentage" means, as of any date, a fraction, the numerator of which equals the aggregate number of shares of Common Stock transferred prior to such date by the MS Shareholders and their Permitted Transferees and the denominator of which equals the number of shares of Common Stock owned on the date hereof by the MS Shareholders and their Permitted Transferees.


"MS Selling Shareholders" means, with respect to any registration of Registrable Stock under the Securities Act, the MS Shareholders who exercise their rights under Sections 5.1(a), 5.1(b) or 5.2 of this Agreement to have Registrable Stock included in such registration.


"MS Shareholder" has the meaning specified in the recitals to this Agreement.


"Old Stock" has the meaning specified in the recitals to this Agreement.


"Partial Subsidiary" means any Subsidiary of the Company of which less than 100% of the capital stock is directly or indirectly owned by the Company.


"Permitted Transferee" means:


(i) in the case of any MS Shareholder, (w) any general or
limited partner of any MS Shareholder (a "MS Partner"), and any
corporation, partnership, Affiliated Employee Benefit Trust or other
entity which is an Affiliate of any MS Partner (collectively, the "MS
Affiliates"), (x) any managing director, general partner, director,
limited partner, officer or employee of a MS Shareholder or a MS
Affiliate (collectively, "MS Associates"), (y) the heirs, executors,
administrators, testamentary trustees, legatees or


-4- 6


beneficiaries of any MS Associate and (z) a trust, the
beneficiaries of which, or a corporation, limited liability company or
partnership, the shareholders, members or general or limited partners
of which, include only MS Shareholders, MS Affiliates, MS Associates,
their spouses or their lineal descendants;


(ii) in the case of any Minority Shareholder who is a natural
person, (x) a Person to whom Shares are transferred from such Minority
Shareholder (A) by will or the laws of descent and distribution or (B)
by gift without consideration of any kind; provided that such
transferee is the lineal descendant or spouse of a Person who is a
signatory to this Agreement, or (y) a trust, each primary beneficiary
of which is the spouse or lineal descendant of such Minority
Shareholder or his Permitted Transferees under clause (x) above;


(iii) in the case of any Shareholder, the Company;


(iv) in the case of Baum, [any Baum Affiliate, and, effective
after December 31, 1998, (x) any partner or member of such Baum
Affiliate; provided that at no time shall the number of Shares
transferred pursuant to this clause (x), when added to the aggregate
number of Shares transferred pursuant to this clause (x) or sold by
such Baum Affiliate during the preceding 90 days, exceed the maximum
number of shares of Common Stock that could then be sold by such Baum
Affiliate in accordance with thevolume limitations of Rule 144(e) (or
any successor provision) under the Securities Act, or (y) any partner
or member any Baum Affiliate in connection with any distribution of
all or substantially all of the net assets such Baum Affiliate to its
partners or members, as applicable];


(v) in the case of Excelsior Investors, L.L.C., any Person
who is a member thereof on the date of this Agreement;


(vi) in the case of Citicorp, a Person that is an Affiliate
of Citicorp, it being understood that for purposes of this provision,
in the case of Citicorp or its Permitted Transferees, a trust
established under ERISA which is an Affiliate of Citicorp or an
Affiliated Employee Benefit Trust shall be deemed an Affiliate of
Citicorp or its Permitted Transferees;


(vii) any Person with respect to which the Board, in its sole
discretion, shall have adopted a resolution (whether before or after
the date of this Agreement) stating that the Board has no objection if
a transfer of Shares is made to such Person; provided that, if the MS
Shareholders shall at the time of the proposed transfer beneficially
own, in the aggregate, shares of Common Stock representing at least
10% of the shares of Common Stock then outstanding (on a Fully Diluted
basis), the MS Shareholders shall in their sole discretion have
approved such resolution; or


(viii) in the case of JSS Management Company, Ltd., (x) James
A. Schlindwein, or (y) any general or limited partner of JSS who is a
spouse or lineal descendant of James A. Schlindwein.


-5- 7


"Person" means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.


"Principal Subsidiary" has the meaning specified in Section 2.1(a) of this Agreement.


"Registrable Stock" means any Shares until the first to occur of (i) a registration statement covering such Shares has been declared effective by the SEC and such Shares have been disposed of pursuant to such effective registration statement, (ii) such Shares have been sold in compliance with all of the applicable conditions of Rule 144, (iii) such shares are eligible to be sold pursuant to Rule 144(k), or (iv) such Shares have otherwise been transferred, the Company has delivered a new certificate or certificates for such Shares not bearing the legend required pursuant to this Agreement and such Shares may be resold without registration under the Securities Act.


"Registration Expenses" means (i) all SEC, stock exchange or NASDAQ registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Shares), (iii) printing expenses, (iv) internal expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) reasonable fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including any costs associated with the delivery by independent certified public accountants of a comfort letter or letters requested pursuant to Section 5.4(h) hereof), (vi) the reasonable fees and expenses of any special experts retained by the Company in connection with such registration, (vii) reasonable fees and expenses of no more than one counsel for all of the Selling Shareholders, (viii) fees payable to the National Association of Securities Dealers, Inc and (ix) fees and disbursements of underwriters customarily paid by issuers or sellers of securities in firm-commitment underwritings; provided, however, that the term "Registration Expenses" shall not include any (w) underwriting or brokerage fees, discounts or commissions, (x) transfer taxes, (y) out-of-pocket expenses of the Selling Shareholders (or of the agents who manage their accounts) or (z) any fees and expenses of underwriters' counsel (other than pursuant to clause (ii) of this paragraph); provided, further, that the counsel for the Selling Shareholders contemplated by clause (vii) of this definition shall be selected by the Selling Shareholders beneficially owning a majority of the Shares to be sold for the account of all Selling Shareholders, but in any event shall be reasonably acceptable to the Company.


"registration statement" means a registration statement under the Securities Act.


"Representatives" has the meaning specified in Section 6.1(b) of this Agreement.


"Rule 144" means Rule 144 (or any successor provision) under the Securities Act.


"SEC" means the Securities and Exchange Commission.


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"Securities Act" means the Securities Act of 1933, as amended.


"Selling Shareholders" means the Minority Selling Shareholders and the MS Selling Shareholders.


"Schroeder" means Horst W. Schroeder and each of his Permitted Transferees in respect of Shares transferred before or after the date hereof.


"Schroeder Percentage" means, as of any date, a fraction, the numerator of which shall equal the aggregate number of shares of Common Stock transferred prior to such date by Schroeder and the denominator of which shall equal the number of shares of Common Stock owned on the date hereof by Schroeder.


"Shareholder" means each Person (other than the Company) who shall be a party to this Agreement, whether in connection with the execution and delivery hereof as of the date hereof, pursuant to Section 7.3 or otherwise, so long as such Person shall beneficially own any Shares.


"Shares" means, with respect to a Shareholder, all shares of Common Stock issued upon the conversion of shares of Old Stock owned by such Shareholder on the date hereof.


"Significant Action" means:


(i) the appointment or removal, with or without cause, of the
Chairman of the Board;


(ii) any merger, consolidation or other similar business
combination to which the Company or any of its Subsidiaries is a
party; except for any such merger, consolidation or business
combination which both (x) involves a Subsidiary of the Company as a
party and (y) would be a Major Acquisition but for the failure of such
merger, consolidation or business combination, as applicable, to equal
or exceed the monetary threshold specified in the definition of "Major
Acquisition".


(iii) any sale, lease, exchange, transfer or other
disposition, directly or indirectly, in a single transaction or series
of related transactions, of a majority of the tangible assets of the
Company and its Subsidiaries taken as a whole;


(iv) except for (A) the exercise or grant of stock options,
restricted stock, phantom stock, stock appreciation rights or similar
rights or interests pursuant to employee or director benefit plans of
the Company or any of its Subsidiaries or (B) the conversion, exchange
or exercise of any securities outstanding on the date hereof that are
convertible into, exchangeable for or exercisable for capital stock of
the Company, any increase or reduction in the authorized capital of
the Company or any Partial Subsidiary, or any recapitalization of the
Company or any Partial Subsidiary, or the creation of any additional
class of capital stock of the Company or any Partial Subsidiary, or
the sale, issuance, distribution, exchange, purchase or redemption of
shares of capital stock of the


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Company or any Partial Subsidiary, or phantom equity, stock
appreciation and similar interests and rights (or any securities
convertible into or exchangeable for capital stock of the Company or
any Partial Subsidiary or phantom equity, stock appreciation and
similar interests and rights) or any rights, warrants or options to
purchase, subscribe for or acquire any such capital stock or
convertible or exchangeable securities or phantom equity, stock
appreciation and similar interests and rights of the Company or any
Partial Subsidiary;


(v) any amendment, modification or repeal of any provision
of the certificate of incorporation or bylaws of the Company or any of
its Subsidiaries or any change in the jurisdiction of incorporation of
the Company or any of its Subsidiaries;


(vi) the approval of any dissolution or plan of liquidation
of the Company or any of its Subsidiaries;


(vii) the authorization of any general assignment by the
Company or any of its Subsidiaries for the benefit of creditors or of
the institution by the Company or any of its Subsidiaries of any
proceeding to adjudicate it as bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
dissolution, protection, relief, or composition of the Company or any
of its Subsidiaries or their respective debts under any existing or
future law of any jurisdiction relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order
for relief or the appointment of a receiver, trustee, or other similar
official for the Company, any of its Subsidiaries or for any
substantial part of their respective properties;


(viii) the declaration or making of any provision for payment
of, or the setting aside of assets with respect to, any dividend or
other distribution (in cash, securities or other property) by the
Company or any Partial Subsidiary with respect to any capital stock of
the Company or Partial Subsidiary or any redemption or repurchase of
any such capital stock, except for (A) dividends on Common Stock
payable in the form of Common Stock and (B) repurchases of capital
stock of the Company or any Partial Subsidiary pursuant to the terms
of employee or director benefit plans or employment agreements;


(ix) the creation, issuance, assumption, guarantee or
incurrence by the Company in any one transaction or series of related
transactions of any indebtedness or the making of any advance or loan
to any Person, that increases the aggregate amount of indebtedness,
loans, advances and guarantees of the Company to an amount that is at
least $30 million greater than the sum of (A) aggregate amount of such
indebtedness, loans, advances and guarantees outstanding on the date
of this Agreement and (B) the aggregate amount of availability
remaining under all credit facilities of the Company as of the date of
this Agreement;


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(x) the termination of the engagement of Ernst & Young LLP as
the independent auditors for the Company and its Subsidiaries or the
selection of any other public accounting firm as the independent
auditors for the Company and its Subsidiaries;


(xi) any Major Acquisition;


(xii) any acquisition or construction of a new pasta
production facility by the Company or any of its Subsidiaries with an
aggregate cost of at least $30 million;


(xiii) any grant or award to any one Person under any stock
option, equity incentive or other benefit plan of the Company that
involves or relates to more than [5,000] shares of Common
Stock[confirm that 5,000 share amount reflects a pre-split concept];


(xiv) any adoption of a shareholder rights plan; or


(xv) any commitment to do any of the foregoing actions.


"Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by a company.


"Subsidiary Board" means the board of directors of any Principal Subsidiary.


"Subsidiary Director" shall have the meaning set forth in Section 2.1(a) of this Agreement.


"Third Party" means a prospective purchaser of Shares in an arm's-length transaction from a Shareholder where such purchaser is not a Permitted Transferee of such Shareholder.


"Thompson" means Richard S. Thompson, Thompson Holdings, Inc., Thompson Holdings, L.P., and each of their respective Permitted Transferees in respect of Shares transferred before or after the date hereof.


"transfer" has the meaning set forth in Section 3.1(a) of this Agreement.


"Underwritten Offering" means a firm-commitment underwritten public offering of Registrable Stock pursuant to an effective registration statement.


"Webster Allotment" means (i) with respect to fiscal year 1998, no shares of Common Stock, (ii) with respect to fiscal year 1999, 15,000 shares of Common Stock, (iii) with respect to fiscal year 2000, 30,000 shares of Common Stock, minus the aggregate number of shares of Common Stock transferred by Webster in fiscal year 1999, (iv) with respect to fiscal year 2001, 45,000 shares of Common stock, minus the aggregate number of shares of Common Stock transferred by Webster in fiscal years 1999 and 2000 and (v) with respect to fiscal year 2002,


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60,000 shares of Common Stock, minus the aggregate number of shares of Common Stock transferred by Webster in fiscal years 1999, 2000 and 2001.


(b) The term "MS Shareholder", to the extent an MS Shareholder shall have transferred any of its Shares to one or more Permitted Transferees, shall mean such MS Shareholder and such Permitted Transferees, taken together and any right or action that may be taken at the election of such MS Shareholder may be taken at the election of such MS Shareholder and all such Permitted Transferees.


ARTICLE 2
CORPORATE GOVERNANCE


2.1 Composition of the Board. (a) The Board shall initially consist of nine directors, to be nominated to the Board as follows:


(i) one Director nomine
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