**Exhibit10.3**

 

CONFIDENTIAL TREATMENT REQUESTED. CERTAIN PORTIONS HAVE BEEN OMITTEDAND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.

 

 

**SERVICESAGREEMENT**

 

THIS SERVICES AGREEMENT(this “Agreement”) is entered into as of December 26th, 2003, by and betweenDNA DREAMFIELDS COMPANY, LLC, an Ohio limited liability company (“DNA”), andDAKOTA GROWERS PASTA COMPANY, INC., a North Dakota corporation (“DakotaGrowers”).

 

W  I  T N  E  S S  E  T H

 

WHEREAS, Dakota Growers,B-New, LLC, an Ohio limited liability company, TechCom Group, LLC, a Floridalimited liability company, and Buhler, Inc., a Minnesota corporation, haveformed and capitalized DNA for the purposes of, among other things,manufacturing in North America and selling globally, low digestible carbohydratepasta, rice and potatoes under the brand name, “Dreamfields” (the “Brand”);

 

WHEREAS, Dakota Growers isin the business of manufacturing, marketing, distributing and selling dry pastaproducts;

 

WHEREAS, Dakota Growers andDNA have entered into a certain Exclusive Manufacturing Agreement (the“Manufacturing Agreement”), dated of even date herewith, pursuant to whichDakota Growers has agreed to manufacture, on an exclusive basis, low digestiblecarbohydrate dry pasta products under the Brand (the “Products”), and DNA hasengaged Dakota Growers to so manufacture, on an exclusive basis, the Products,upon the terms and subject to the conditions of the Manufacturing Agreement;

 

WHEREAS, Dakota Growers andDNA have entered into a certain Trademark License Agreement (the “TrademarkLicense”), dated of even date herewith, pursuant to which DNA has granted toDakota Growers an exclusive license to use the Brand in connection with DakotaGrowers’ manufacture of the Products;

 

WHEREAS, Dakota Growers andDNA have entered into a certain Technology Sublicense Agreement (the“Technology Sublicense”), dated of even date herewith, pursuant to which DNAhas granted to Dakota Growers an exclusive sublicense to use certain technologynecessary to manufacture the Products; and

 

WHEREAS, DNA desires thatDakota Growers provide certain administrative, accounting, informationtechnology, sales and distribution services to DNA to facilitate the sale anddistribution of the Products, and Dakota Growers desires to provide to DNA suchservices.

 

NOW, THEREFORE, inconsideration of the foregoing and the mutual agreements, provisions andcovenants contained in this Agreement, the parties agree as follows:

 

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1.                                       Term; Services; Other Branded Products;Relationship to Manufacturing Agreement.

 

(a)                                  Dakota Growers shall provide to DNA theservices set forth on Exhibit A hereto, whereby any and all services, which are customarily and reasonablyconnected with the services listed in Exhibit A but are not expressly specifiedand not expressly excluded by mutual agreement, shall be deemed to be includedin the list (as Exhibit A may be updated from time to time bymutual written agreement of the parties to reflect any material changes in the Servicesand as Exhibit A, the “Services”) during the period commencing on thedate hereof and continuing until the earliest to occur of the following (theperiod commencing on the date hereof and continuing until the earliest to occurof the following being the “Term”):

 

(i)                                     any assignment or transfer of DNA’s rightsand obligations under the Manufacturing Agreement, the Trademark License andthe Technology Sublicense Agreement by DNA to a person or entity in whichDakota Growers does not maintain an equity interest;

 

(ii)                                  sixty (60) days following delivery of awritten notice by a party hereto that the other party hereto has materiallybreached this Agreement, but only to the extent that the breaching party hasfailed to cure such material breach within such sixty-day period;

 

(iii)                               the mutual written consent of Dakota Growers and DNA;

 

(iv)                              sixty (60) days following the date upon which DNA notifies DakotaGrowers in writing pursuant to subsection (b) below that it shall nolonger obtain any of the Services from Dakota Growers; and

 

(v)                                 either Dakota Growers or DNA provides writtennotice of termination to the other party, in the event that the other partycommences a case as debtor under Title 11 of the United States Code or anysimilar proceeding for the relief of debtors, or has any such case orproceeding commenced against it, or otherwise cease to function as a goingconcern.

 

(b)                                 Upon sixty (60) days’ written notice toDakota Growers, DNA may provide any or all of the Services for its own accountand/or may obtain all or part of the Services from third-party providers; provided,however, that the Manufacturing Agreement shall remain in force andeffect notwithstanding the foregoing or any termination of this Agreement.  Subject to the terms and conditions of theTechnology Sublicense, DNA hereby agrees to share with Dakota Growers allintellectual property, manufacturing techniques and methods and otherproprietary information owned by or licensed to DNA necessary for DakotaGrowers to provide the Services.

 

(c)                                  In the event that DNA elects to pursue themanufacture of any other Branded products, including, but not limited to,Branded rice and potatoes, DNA shall have the right (but not the obligation) todesignate Dakota Growers as a provider of services in connection with suchBranded products.  To the extent thatDakota Growers provides any services to DNA in connection with Branded riceand/or potatoes, such Branded rice and/or potatoes shall be deemed to be “Products”for all purposes of this Agreement, any such services shall be deemed to be“Services” for all purposes of this Agreement, and any such services shall beprovided by Dakota Growers to DNA subject to the terms and conditions of thisAgreement.

 

(d)                                 DNA and Dakota Growers acknowledge and agreethat Section 3.3 of the Manufacturing Agreement provides for certain defaultprovisions in respect of Dakota Growers’ manufacture of the

 

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Products, to the extent that the mattersaddressed in such default provisions (which default provisions bear upon, amongother things, the ordering, delivery, risk of loss and pricing of, and titleto, the Products) are not addressed in any other written agreement between DNAand Dakota Growers.  DNA and DakotaGrowers further acknowledge and agree that the matters addressed in Section 3.3of the Manufacturing Agreement are addressed in this Agreement and encompassedwithin the Services and, accordingly, so long as this Agreement is in force andeffect and this Agreement and/or the Services have not been amended or modifiedto no longer address the matters addressed in Section 3.3 of the ManufacturingAgreement, the terms and conditions of this Agreement shall govern the mattersaddressed in Section 3.3 of the Manufacturing Agreement; provided, however,that this Agreement shall in no event be deemed to in any manner whatsoeveramend, or constitute an amendment to, the Manufacturing Agreement.

 

2.                                       Payments.  The amount of the fee to becharged by Dakota Growers to DNA for each of the Services is set forth on ExhibitA hereto.  DNA and Dakota Growersacknowledge and agree that the Services to be provided by Dakota Growers to DNAinclude, but are not limited to, Dakota Growers’ distribution and sale ofProducts to customers, its invoicing of customers for Products sold and thecollection of invoiced amounts from customers. Within thirty (30) days of the end of each calendar month during theTerm (each calendar month during the Term being a “Monthly Period”), DakotaGrowers shall deliver to DNA: (i) a statement (each, a “Monthly Statement”),substantially in the form as Exhibit B hereto, setting forth thereon theinformation called for by Exhibit B in respect of each type of Productsold by Dakota Growers during the Monthly Period then ended (it beingacknowledged and agreed by DNA and Dakota Growers that Dakota Growers shall bedeemed to have sold Product at the time of invoicing the customer therefor);and (ii) a check, made payable to DNA, in an amount equal to that calculatedfor Line Item L of Exhibit B and shown on each Monthly Statement.  Within nine (9) months following the end ofeach calendar year during the Term, DNA shall have the right, but not theobligation, to conduct and complete an audit of the books and records of DakotaGrowers (during Dakota Growers’ normal business hours and subject to suchconfidentiality restrictions as Dakota Growers may impose thereon) for purposesof confirming the amount of payments made by Dakota Growers to DNA during thecalendar year then ended pursuant to this Section 2.  DNA shall bear any and all costs, fees andexpenses associated with conducting any audit in accordance with theimmediately-preceding sentence; provided, however, that in theevent, as a result of any such audit, it is determined by mutual writtenagreement of the parties or by a court of competent jurisdiction that theamounts actually paid by Dakota Growers to DNA during the calendar year thenended pursuant to this Section 2 were in excess of three percent (3.0%)less than the amount that should have been paid by Dakota Growers to DNA duringthe calendar year then ended pursuant to this Section 2, then DakotaGrowers shall bear any and all costs, fees and expenses associated withconducting such audit, including all legal fees.

 

3.                                       Responsibility; Non-Competition.

 

(a)                                  Dakota Growers shall use those efforts anddegree of care in providing the Services that are comparable to those used byDakota Growers for its own account in providing services, activities and workthe same or similar in nature to the Services. Dakota Growers shall use commercially reasonable efforts under thecircumstances to remedy any delays, interruptions, omissions, mistakes,accidents or errors in the Services and to restore such Services to comply withthe terms of this Agreement.

 

(b)                                 Dakota Growers hereby agrees not to market ordistribute products that are competitive with the Products for the account of,or on behalf of, any third party, other than DNA, its affiliates and theirrespective successors and assigns.

 

4.                                       Termination.  Upon the expiration of theTerm in accordance with Section 1 hereof, the rights and obligations ofDakota Growers and DNA under this Agreement will automatically terminate.

 

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Upon such expiration, Dakota Growers willcease to have any obligation to provide any Services to DNA, and each of DakotaGrowers and DNA will promptly deliver to the other all data, programs, softwarematerials, and other properties owned by the other and held by it in connectionwith the performance of this Agreement (but not in connection with theperformance of any other agreement). Each of Dakota Growers and DNA will assist the other at such other party’srequest and expense in effecting an orderly termination of this Agreement.

 

5.                                       Remedies.  In the event of a materialbreach of this Agreement by a party hereto, the non-breaching party shall haveright to pursue any and all rights and remedies available at law or in equityfor such material breach.

 

6.                                       Relationship of Parties. Except as provided in this Agreement or in any other agreement betweenDakota Growers and DNA, none of the parties will act or represent or holditself out as having authority to act as an agent or partner of the otherparty, or in any way bind or commit the other party to any obligations.  Nothing contained in this Agreement will beconstrued as creating a partnership, joint venture, agency, trust or otherassociation of any kind, each party being individually responsible only for itsobligations as set forth in this Agreement. The employees performing the services contemplated by this Agreementwill remain employees of Dakota Growers, and DNA shall not have anyresponsibility for such employees.

 

7.                                       Force Majeure.  IfDakota Growers is prevented from complying, either totally or in part, with anyof the terms or provisions of this Agreement by reason of war, rebellion, fire,flood, storm or other acts of God, then upon written notice to DNA, theaffected provisions and requirements of this Agreement will be suspended duringthe period of such disability, and Dakota Growers will make all reasonableefforts to remove such disability as soon as practicable and to carry out isobligations under this agreement after such disability is removed.

 

8.                                       Notices.  Any notice, request, demand,waiver, consent, approval or other communication which is required or permittedto be given to any party hereunder will be in writing and will be deemed givenonly if delivered to the party personally or sent to the party by facsimile(followed by hard copy sent by registered or certified mail) or if sent byreputable overnight courier, addressed to the party at its address set forthbelow:

 
| If  to Dakota Growers:                                                                                                                                                 |   | If  to DNA:                                                                                                                                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                   |   |                                                                                                                                             |
| Dakota  Growers Pasta Company, Inc.  One Pasta Avenue  Carrington, ND 58421  Attention: Thomas P. FriezenTel.: (701) 652-4893  Fax: (701) 652-3701                     |   | DNA  Dreamfields Company, LLC  14 West Park Place  Oxford, OH 45056  Attention: Mike CrowleyTel.: (513) 524-9256  Fax: (513) 524-5167            |
|                                                                                                                                                                   |   |                                                                                                                                             |
| with  a copy to:                                                                                                                                                       |   | with  a copy to:                                                                                                                                 |
|                                                                                                                                                                   |   |                                                                                                                                             |
| Lindquist  & Vennum P.L.L.P.  4200 IDS Center  80 South Eighth StreetMinneapolis, MN 55402  Attention: Ronald D. McFall  Tel.: (612) 371-3551  Fax: (612) 371-3207 |   | Ulmer  & Berne LLP  600 Vine Street  Suite 2800  Cincinnati, OH 45201  Attention: Scott P. Kadish  Tel.: (513) 762-6200  Fax: (513) 762-6245 |

 

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9.                                       Successors and Assigns. Subject to the terms and condition of Section 1 of thisAgreement, the provisions of this Agreement will be binding upon and inure tothe benefit of the parties and their respective successors and assigns, provided,however, that no party may assign, delegate or otherwise transfer any ofits rights or obligations under this Agreement without the prior writtenconsent of the other party.

 

10.                                 Governing Law. This Agreement shall be governed by and construed in accordance with thelaws of the State of Ohio, without giving effect to the principles of conflictsof law thereof.  ANY LITIGATION BASEDHEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, SHALLBE BROUGHT AND MAINTAINED EXCLUSIVELY: (i) IN THE COURTS OF THE STATE OFMINNESOTA (HENNEPIN COUNTY) OR IN THE UNITED STATES DISTRICT COURT FOR THEDISTRICT OF MINNESOTA, IN THE CASE OF ANY LITIGATION COMMENCED BY LICENSOR; AND(ii) IN THE COURTS OF THE STATE OF OHIO (HAMILTON COUNTY) OR IN THE UNITEDSTATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO, IN THE CASE OF ANYLITIGATION COMMENCED BY LICENSEE.  EACHPARTY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THECOURTS OF THE STATE OF MINNESOTA (HENNEPIN COUNTY) AND OF THE UNITED STATESDISTRICT COURT FOR THE DISTRICT OF MINNESOTA FOR THE PURPOSE OF ANY SUCHLITIGATION COMMENCED BY LICENSOR, AND EACH PARTY HEREBY EXPRESSLY ANDIRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF OHIO(HAMILTON COUNTY) AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERNDISTRICT OF OHIO FOR THE PURPOSE OF ANY SUCH LITIGATION COMMENCED BY LICENSEE.  EACH OF THE PARTIES FURTHER IRREVOCABLYCONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BYPERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF MINNESOTA AND OHIO,RESPECTIVELY.  THE PARTIES HEREBYEXPRESSLY AND IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANYOBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANYSUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THATANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

11.                                 EntireAgreement.  This Agreementconstitutes the entire understanding of the parties and supersedes any prioragreements or understandings, written or oral, between the parties with respectto the subject matter hereof.

 

12.                                 Construction; Interpretation; Severability.  Theparties agree that any rule of law or any legal decision that would requireinterpretation of any claimed ambiguities in this Agreement against the partythat drafted it has no application and is expressly waived.  If any provision, clause or part of thisAgreement, or the application thereof under certain circumstances, is heldinvalid, the remainder of this Agreement, or the application of such provision,clause or part under other circumstances, will not be affected thereby.

 

13.                                 Further Assurances. Each party will cooperate and take such action as may be reasonablyrequested by the other party in order to carry out the provisions and purposeof this Agreement and the transaction contemplated hereby.  Dakota Growers, on the one hand, and DNA, onthe other hand, recognize and acknowledge that, from time to time during theTerm, their respective personnel will need to consult with and ask questions ofthe other’s personnel about the Services and other matters related to the Services.  Each party hereto agrees to make itspersonnel reasonably available for such consultations and to make reasonableefforts to respond to such requests at no charge to the requesting party.

 

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14.                                 No Third Party Beneficiaries. This Agreement is for the sole benefit of the parties and theirpermitted assigns and nothing in this Agreement, expressed or implied, willgive or be construed to give to any person or entity, other than the partiesand such assigns, any legal or equitable rights hereunder.

 

15.                                 Amendment and Waiver.  Theparties may, by mutual written agreement, amend this Agreement in any respect,and any party, as to such party, may: (i) extend the time for the performanceof any of the obligations of the other party; (ii) waive any inaccuracies inrepresentations and warranties by the other party; (iii) waive compliance bythe other party with any of the agreements contained herein and performance ofany obligations by the other party; and; (iv) waive the fulfillment of anycondition that is precedent to the performance by such party of any of itsobligations under this agreement.  To beeffective, any such amendment or waiver must be in writing and signed by theparty against whom enforcement of the same is sought.

 

16.                                 Confidentiality. Each party agrees that all information marked as confidential,proprietary, trade secrets, know how, manuals and other information disclosedto it by the other party, whether disclosed prior to or during the Term, isconfidential and proprietary to the disclosing party (“ConfidentialInformation”).  Confidential Informationshall not include information which: (a) is in or hereafter enters the publicdomain through no fault or action of the party to which it is disclosed; (b) isobtained by the party to which it is disclosed from a third party which is notsubject to any legal restriction on its right to use and disclose suchinformation; (c) is independently developed by employees of the party to whichit is disclosed without use of any Confidential Information of the other party;or (d) is required by law or judicial or administrative processes to bedisclosed.  The parties agree not to useany Confidential Information of the other party during the term of this Agreementand for a period of three (3)years thereafter for any purpose other than as permitted or required forperformance hereunder.  Upon terminationor expiration of this Agreement for any reason, the parties shall return toeach other all Confidential Information of the other party in tangible form,including Confidential Information in electronic or magnetic form.

 

17.                                 Counterparts. This Agreement may be executed in one or more counterparts, each ofwhich will be deemed an original, but which together will constitute one andthe same instrument.

 

*  *  *  *  *

 

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IN WITNESS WHEREOF, theparties have caused this Services Agreement to be duly executed effective as ofthe day and year first above written.

 

 
|   | DAKOTA  GROWERS PASTA COMPANY, INC. |
|--------|-------------------------------------|
|   |                                |
|   |                                |
|   |                                |   |
|   | By:                                 |         /s/  Tim Dodd |   |
|   | Its:                                |         President/CEO |   |
|   |                                |
|   | DNA  DREAMFIELDS COMPANY, LLC       |
|   |                                |
|   |                                |
|   |                                |   |
|   | By:                                 |         /s/  Mike Crowley |   |
|   | Its:                                |         President |   |
|        |                                     |  |  |  |

 

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# **EXHIBIT A**

 

 

 
|                                                                                                                                                                                                                                                                                   |   | **Fee**                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|
| DNA financial accounting services  DNA tax accounting services  Information technology servicesSales  administration  Sales services  Sales forecastingSales  accounting  Supply chain administration  Logistics services  Customer service and order entry  Working capital financing |   | Confidential Treatment Requested. |

 

Tothe extent Dakota Growers supplies logistics services for the delivery andbilling of the Products, the title in and to Products shall remain with DakotaGrowers, and the risk of loss of, or damage to, such Products shall pass fromDakota Growers to Dakota Growers’ customers (“the Customers”), in accordancewith the terms and conditions set forth in purchase orders or agreements by andbetween Dakota Growers and the Customers covering such Products.

 

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# **EXHIBIT B**

 

 
|   |   |                                                            |   | **Product  Type A** |   | **Product  Type B** |   | **Product  Type C** |   | **Total** |
|--------|--------|-----------------------------------------------------------------|--------|---------------------|--------|---------------------|--------|---------------------|--------|-----------|
| (A)    |   | Total  pounds of Product sold during Monthly Period             |   |                |   |                |   |                |   |      |
| (B)    |   | Total  sales price of Product sold during Monthly Period(1)     |   |                |   |                |   |                |   |      |
| (C)    |   | Total  cash discounts during Monthly Period(2)                  |   |                |   |                |   |                |   |      |
| (D)    |   | Total  promotions and allowances during Monthly Period(3)       |   |                |   |                |   |                |   |      |
| (E)    |   | Total  brokerage fees during Monthly Period(4)                  |   |                |   |                |   |                |   |      |
| (F)    |   | Bad  debt write-off during Monthly Period(5)                    |   |                |   |                |   |                |   |      |
| (G)    |   | Total  cost of freight during Monthly Period(6)                 |   |                |   |                |   |                |   |      |
| (H)    |   | Total  storage and handling fees during Monthly Period(6)       |   |                |   |                |   |                |   |      |
| (I)    |   | Total  transfer price of Product during Monthly Period(7)       |   |                |   |                |   |                |   |      |
| (J)    |   | Services  fees during Monthly Period(8)                         |   |                |   |                |   |                |   |      |
| (K)    |   | Total  amount to Dakota Growers (C + D + E + F + G + H + I + J) |   |                |   |                |   |                |   |      |
| (L)    |   | Net  amount to DNA (B – K)                                 |   |                |   |                |   |                |   |      |

 

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(1)                                  Total invoiced sales price of Product soldduring a Monthly Period.  The salesprice of Product shall be determined from time to time by mutual writtenagreement of DNA and Dakota Growers.

 

(2)                                  Total applicable cash discounts on invoicedsales of Product sold during a Monthly Period. Cash discounts for Product shallbe determined from time to time by mutual written agreement of DNA and DakotaGrowers.

 

(3)                                  Total promotions and allowances during aMonthly Period shall be a function of reductions in the agreed-upon sales priceof Product sold and/or promotion and allowance accruals and/or merchandisingdevelopment fund (“MDF”) accrual programs. Promotions, allowances and MDFprograms shall be determined from time to time by mutual written agreement ofDNA and Dakota Growers. In the case of any promotions during a Monthly Periodtaking the form of an off-invoice allowance, such reduction shall be reflectedin Line Item (D) (Total promotions and allowances during Monthly Period) andshall not be reflected in Line Item (B) (Total sales price of Product soldduring Monthly Period).

 

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(4)                                  Brokerage fees for Products shall be based onbrokerage agreements as determined from time to time by mutual writtenagreement of DNA and Dakota Growers.

 

(5)                                  Based upon actual bad debt write-offs byDakota Growers for the Products during a Monthly Period.

 

(6)                                  Based upon actual costs and fees incurred byDakota Growers for the Products during a Monthly Period.

 

(7)                                  Total transfer price shall be a function oftotal pounds of Product sold during a Monthly Period, times theagreed-upon per pound transfer price of Product sold during such MonthlyPeriod.

 

(8)                                  Service fees shall be a function of totalpounds of Product sold during a Monthly Period times the service fee perpound from Exhibit A.

 

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