Exhibit 10.2 AMERICAN ITALIAN PASTA COMPANY INDEPENDENT CONTRACTOR AGREEMENT THIS AGREEMENT (this "Agreement"), dated December 18, 2003 is by and between American Italian Pasta Company ("AIPC"), and David E. Watson, an individual ("Watson") (collectively "the parties") and supersedes any and all prior oral or written agreements between the parties with respect to Watson's employment by AIPC other than Sections 4, 5 and 6 of his Employment Agreement dated September 1, 2002. WITNESSETH: WHEREAS, AIPC is engaged in the business of durum wheat milling and pasta product production/marketing; and WHEREAS, Watson is currently employed by AIPC, but Watson and AIPC desire to terminate Watson's employment and AIPC desires to engage Watson to consult on strategic planning and development resources; and WHEREAS, Watson desires to be engaged by AIPC in the aforesaid capacity. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Term. 1.1 Subject to the provisions of Section 7 and Section 1.2 hereof, the term of this Agreement (the "Term") will commence as of January 1, 2004 (the "Effective Date") and terminate on December 31, 2005. 1.2 This Agreement will renew automatically for successive one (1) year terms beginning January 1, 2006, unless either party gives the other written notice of non-renewal at least six (6) months prior to the end of any term. 1.3 The provisions of Sections 4, 5 and 6, below, will survive and continue to be enforceable regardless of any termination of this Agreement. 2. Services. 2.1 Watson shall consult with AIPC on such matters as may be requested by the Chief Executive Officer of AIPC from time to time. 2.2 Watson will, to the reasonable satisfaction of AIPC, at all times faithfully, industriously, and to the best of Watson's ability, experience, and talents perform all of the services that may be required of and from Watson pursuant to the terms hereof.
3. Compensation. 3.1 Cash Compensation. AIPC shall pay Watson, and Watson shall accept from AIPC, in full payment for Watson's services hereunder, an annual fee of $25,000. In addition, the Company agrees to utilize Watson's services under a consulting arrangement which will provide to Watson an additional amount for consulting services that when combined with the annual retainers of $25,000 (for two years) equals, but does not exceed $250,000. In the event that all or any part of the additional $200,000 is not paid to Watson by December 31, 2005, it shall be paid to Watson on January 3, 2006. 3.2 Employee Benefits. AIPC agrees to cover the cost of COBRA benefit continuation under AIPC's health, medical, supplemental medical and life insurance plans or programs provided to the Employee by Employer pursuant to Section 3.7 hereof ("Employee Welfare Plans") at the time of such termination for a period of up to 18 months. Should the cost of this coverage be characterized as taxable income to Watson, an additional payment will be made to cover the individual taxation on this taxable amount. Should this contract terminate prior to the 18-month period of time, benefit eligibility ceases immediately. 3.3 Reimbursement of Business Expenses. AIPC agrees to reimburse Watson for reasonable travel and meal expenses incurred in the performance of Watson's services. 3.4 Stock Options and Restricted Shares. (a) Prior to the execution of this Agreement, Watson held 2,500 shares of Restricted Stock, with scheduled vesting through August 27, 2005. Subject to Watson's compliance with the terms of this Agreement, such Restricted Shares shall continue to be held by Watson and shall continue to vest equally over an extended time period until August 27, 2007. (b) Prior to the execution of this Agreement, Watson held unvested options to acquire 25,000 shares of AIPC common stock. Subject to Watson's compliance with the terms of this Agreement, these 25,000 options shall continue to vest during the "Term" of this agreement (December 31, 2005). Any of such options not vested during the "Term" will be cancelled and be null and void. (c) Any options that have vested prior to or during the Term will be eligible for exercise throughout the Term as well as through the Noncompetition Period (January 1, 2008). Any vested options not exercised by January 1, 2008 will be cancelled. 4. Non-Competition, Nonsolicitation and Nondisparagement. 4.1 Watson acknowledges and recognizes the highly competitive nature of the business of AIPC and its affiliates and accordingly agrees as follows: from the day hereof -2-
through January 1, 2008 (the "Noncompetition Period"), Watson will not, in any area in the world where AIPC conducts business, directly or indirectly own, manage, operate, control, be employed by, consult with, or be connected in any manner with the ownership (other than passive investments of not more than one percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), management, operation, or control of any business engaged in the production and/or marketing of pasta products for human consumption. Such said businesses shall include, but not be limited to, Barilla, New World Pasta and Dakota Growers. 4.2 During the Noncompetition Period, Watson will not directly or indirectly induce or attempt to induce any employee of AIPC or any of its affiliates to engage in any activity in which Watson is prohibited from engaging by Section 4.1 hereof or to terminate his or her employment with AIPC or any of its affiliates, will not directly or indirectly assist or attempt to assist others in engaging in any of the activities in which Watson is prohibited from engaging by Section 4.1 hereof, and will not directly or indirectly employ or offer employment to any person who was employed by AIPC or any of its affiliates unless such person shall have ceased to be employed by AIPC or any of its affiliates for a period of at least 12 months. 4.3 During the Noncompetition Period, Watson will not directly or indirectly induce or attempt to induce any customer or supplier of AIPC or any of its affiliates to move, reduce or not increase its trade or business with AIPC or any of its affiliates. 4.4 (a) Watson acknowledges and agrees that disparaging or critical statements made by Watson about AIPC or its board members, officers or employees would be uniquely detrimental to the interests of both parties. Therefore, during the Noncompetition Period, Watson agrees to refrain from making any disparaging or critical statements about AIPC or its board members, officers or employees. (b) AIPC acknowledges and agrees that disparaging or critical statements made by AIPC, its board members, officers or employees about Watson would be uniquely detrimental to the interests of both parties. Therefore, during the Non-competition period, AIPC, its board members, officers and employees agree to refrain from making any disparaging or critical statements about Watson. 4.5 Notwithstanding any provision of this Agreement to the contrary, from and after any breach by Watson of the provisions of Section 4.1, 4.2, 4.3 or 4.4, AIPC shall cease to have any obligations to make payments to Watson under this Agreement. Watson acknowledges that the restrictions contained in Sections 4.1, 4.2, 4.3 and 4.4 are reasonable and appropriate. However, in the event that a court of competent jurisdiction determines that such restrictions are not reasonable and therefore unenforceable, the parties agree that such court may modify the restrictions in order for, but only to the least extent necessary for, the restrictions to be enforced by such court. In the event such court finds that any such restriction cannot be modified so as to make it enforceable, such restriction may be deleted by such court and the enforceability of all other restrictions will be unaffected by such deletion. -3-
5. Confidentiality. Watson acknowledges that, in and as a result of Watson's engagement by AIPC, Watson has been and will be making use of, acquiring, and/or adding to confidential information of a special and unique nature and value relating to such matters as AIPC's trade secrets, systems, procedures, manuals, confidential reports, and lists of customers and/or other services rendered by AIPC, the equipment and methods used and preferred by AIPC's customers, and the prices paid by such customers. As a material inducement to AIPC to enter into this Agreement, and to pay to Watson the compensation referred to in Section 3 hereof, Watson covenants and agrees Watson shall not, at any time during or after the Term, directly or indirectly disclose, divulge, or use for Watson's own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation, or other business organization, entity, or enterprise other than AIPC and any of its subsidiaries or affiliates any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, prices, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, or the business and affairs of AIPC generally or of any subsidiary or affiliate of AIPC, provided, however, that the foregoing shall not apply to information that is not unique to AIPC or that is generally known to the industry or the public other than as a result of breach of this covenant. Watson agrees that, upon termination of Watson's engagement by AIPC for any reason, Watson will return to AIPC immediately all memoranda, books, manuals, training materials, records, computer software, papers, plans, contracts, agreements, information, letters, and other data, and all copies thereof or therefrom, in any way relating to the business of AIPC and its affiliates, except that Watson may retain personal notes, notebooks, and diaries. Watson further agrees that Watson will not retain or use for Watson's account at any time any trade names, trademark, or other proprietary business designation used or owned in connection with the business of AIPC or its affiliates. 6. Specific Performance and Survival. 6.1 Watson acknowledges and agrees that AIPC's remedies at law for a breach or threatened breach of any of the provisions of Section 4 hereof or Section 5 hereof would be inadequate and, in recognition of this fact, Watson agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, AIPC, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction, or any other equitable remedy that may then be available. 6.2 The parties agree that the terms of Sections 4, 5 and 6 are independent of and separable from the other provisions of this Agreement and that the termination of this Agreement for any reason will not affect the continued existence and enforceability of Sections 4, 5 and 6. Those Sections will survive and continue to be fully binding on and enforceable against Watson and AIPC after any termination of this Agreement. -4-
7. Termination. 7.1 AIPC may terminate this Agreement at any time and with or without any cause or reason. If AIPC does so, any remaining compensation will be due and payable within 30 days of said termination date. Thereafter, AIPC shall have no payment or other obligation to Watson. 7.2 Watson may terminate this Agreement at any time and with or without any cause or reason. If Watson does so, AIPC shall have no further payment or other obligation to Watson. 7.3 In the event of any termination of this Agreement, the provisions of Sections 4, 5 and 6 shall survive and remain enforceable. 8. Miscellaneous. 8.1 Burden and Benefit. This Agreement shall be binding upon, and shall inure to the benefit of, AIPC and Watson, their respective heirs, personal, and legal representatives, successors, and assigns. 8.2 Governing Law. In view of the fact that the principal office of AIPC is located in the State of Missouri, the parties understand and agree that the construction and interpretation of this Agreement shall at all times and in all respects be governed by the laws of the State of Missouri, that the state and federal courts situated in the State of Missouri shall have exclusive jurisdiction over any claims arising under or in relation to this Agreement, and that the parties consent to personal jurisdiction in such state and federal courts. 8.3 Headings. The headings of the Sections of this Agreement are for reference only and not to limit, expand, or otherwise affect the contents of this Agreement. 8.4 Entire Agreement; Modification. Except as to AIPC's Stock Option Plans, any instrument relating to an Option or Restricted Share granted thereunder and written agreements signed by both of the parties hereto from time to time after the date hereof, this Agreement contains the entire agreement and understanding by and between AIPC and Watson with respect to the subject matter hereof, and any representations, promises, agreements, or understandings, written or oral, not herein contained shall be of no force or effect. No change, waiver, or modification of any provision of this Agreement shall be valid or binding unless the same is in writing and duly executed by both parties and no evidence of any waiver or modification shall be offered or received in evidence of any proceeding, arbitration, or litigation between the parties hereto arising out of or affecting this Agreement, or the rights or obligations of the parties hereunder, unless such waiver or modification is in writing, duly executed as aforesaid, and the parties further agree that the provisions of this Section 8.4 may not be waived except as set forth herein. 8.5 Waiver of Breach. The waiver by AIPC of a breach of any provision of this Agreement by Watson shall not operate or be construed as a waiver of any subsequent breach by Watson. -5-
8.6 Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the execution page of this Agreement, provided, however, that all notices to AIPC shall be directed to the attention of the Board of Directors of AIPC with a copy to the Secretary of AIPC, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8.7 Withholding Taxes. AIPC may withhold from any amounts payable under this Agreement such federal, state, and local taxes as may be required to be withheld pursuant to any applicable law or regulation. 8.8 Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, AIPC and Watson have duly executed this Agreement as of the day and year first hereof written. WATSON: Signature: /s/ David E. Watson ------------------------------- Printed Name: David E. Watson Address: 6708 N.W. Monticello Terrace Kansas City, MO 64152 AMERICAN ITALIAN PASTA COMPANY By: /s/ Timothy S. Webster -------------------------------------- Printed Name: Timothy S. Webster Address: 4100 North Mulberry Drive Suite 200 Kansas City MO 64116-0696 -6-