**Exhibit10.1**

 

MLA No. RIE539

 

**MASTERLOAN AGREEMENT**

 

**THISMASTER LOAN AGREEMENT** is entered into as of February 24, 2004, between **CoBANK, ACB**(“CoBank”) and **DAKOTA GROWERS PASTA COMPANY, INC., Carrington, NorthDakota** (the “Company”).

 

**BACKGROUND**

 

CoBankand the Company are parties to a Master Loan Agreement dated June 20,2001, as amended (the “Existing Agreement”). Pursuant to the terms of the Existing Agreement, the parties enteredinto one or more Supplements thereto. CoBank and the Company now desire to amend and restate the ExistingAgreement and to apply such new agreement to the Existing Supplements, as wellas any new Supplements that may be issued thereunder.  For that reason and for valuable consideration (the receipt andsufficiency of which are hereby acknowledged), CoBank and the Company herebyagree that the Existing Agreement shall be amended and restated to read asfollows:

 

**SECTION 1.****                            Supplements. **In the event the Company desires toborrow from CoBank and CoBank is willing to lend to the Company, or in theevent CoBank and the Company desire to consolidate any existing loanshereunder, the parties will enter into a Supplement to this agreement (a“Supplement”).  Each Supplement will setforth the amount of the loan,the purpose of the loan, the interest rate or rate options applicable to thatloan, the repayment terms of the loan, and any other terms and conditionsapplicable to that particular loan. Each loan will be governed by the terms and conditions contained in thisagreement and in the Supplement relating to the loan.  As of the date hereof,the following Supplements are outstanding hereunder and shall be governed bythe terms and conditions hereof:  (a)the Statused Revolving Credit Supplement dated February 24, 2004 and numberedRIE539S01; (b) the Consolidating Supplement (Variable and Quoted Fixed RateTerm Loan dated February 24, 2004 and numbered RIE539T01; (c) theConsolidating Supplement (Variable and Quoted Fixed Rate Term Loan datedFebruary 24, 2004 and numbered RIE539T02; (d) the Single Advance Term LoanSupplement Loan dated February 24, 2004 and numbered RIE539T03; (e) theSingle Advance Term Loan Supplement dated February 24, 2004 and numberedRIE539T04; and (f) the Non-Revolving Credit Supplement (used for VariousLetter(s) of Credit) dated February 24, 2004 and numbered RIE539T05.

 

**SECTION 2.****                            Availability. **Loans will be made available on any dayon which CoBank and the Federal Reserve Banks are open for business upon thetelephonic or written request of the Company. Requests for loans must be received no later than 12:00 Noon Company’slocal time on the date the loan is desired. Loans will be madeavailable by wire transfer of immediately available funds to such account oraccounts as may be authorized by the Company. The Company shall furnish to CoBank a duly completed and executed copyof a CoBank Delegation and Wire and Electronic Transfer Authorization Form, andCoBank shall be entitled to rely on (and shall incur no liability to theCompany in acting on) any request or direction furnished in accordance with theterms thereof.

 

**SECTION 3.****                            Repayment. **The Company’s obligation to repay eachloan shall be evidenced by the promissory note set forth in the Supplementrelating to that loan or by such replacement note as CoBank shall require.  CoBank shall maintain a record of all loans,the interest accrued thereon, and all payments made with respect thereto, andsuch record shall, absent proof of manifest error, be conclusive evidence ofthe outstanding principal and interest on the loans.  All payments shall be made bywire transfer of immediately available funds, by check, or by automatedclearing house or other similar cash handling processes as specified byseparate agreement between the Company and CoBank.  Wire transfers shall be made to ABANo. 307088754 for advice to and credit of CoBank (or to such other accountas CoBank may direct by notice).  TheCompany shall give CoBank telephonic notice no later than 12:00 Noon Company’slocal time of its intent to pay by wire and funds received after 3:00 p.m.Company’s local time shall be credited on the next business day.  Checks shall be mailed to CoBank, Department 167, Denver, Colorado80291-0167 (or to such other place as CoBank may direct by notice).  Credit for payment by check will not begiven until the later of:  (a) the dayon which CoBank receives immediately available funds; or (b) the next businessday after receipt of the check.

 

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**SECTION 4.****                            Capitalization. **The Company agrees to purchase such participation certificates in CoBankas CoBank may from time to time require in accordance with its Bylaws.  However, the maximum amount of participation certificates which theCompany shall be obligated to purchase in connection with any loan may notexceed the maximum amount permitted by the Bylaws at the time the Supplementrelating to that loan is entered into or such loan is renewed or refinanced byCoBank.

 

**SECTION 5.****                            Security. **The Company’s obligations under this agreement,all Supplements (whenever executed), and all instruments and documentscontemplated hereby or thereby, shall be secured by a statutory first lien onall equity which the Company may now own or hereafter acquire in CoBank.  Inaddition, the Company’s obligations under each Supplement (whenever executed)and this agreement shall be secured by a first lien (subject only to exceptionsapproved in writing by CoBank) pursuant to all security agreements, mortgages,and deeds of trust executed by the Company in favor of CoBank (including theSt. Paul Bank for Cooperatives), whether now existing or hereafter enteredinto.  As additional security for thoseobligations:  (i) the Company agrees togrant to CoBank, by means of such instruments and documents as CoBank shallrequire a first priority lien on such of its other assets, whether now existingor hereafter acquired, as CoBank may from time to time require; and (ii) theCompany agrees to grant to CoBank, by means of such instruments and documentsas CoBank shall require, a first priority lien on all realty which the Companymay from time to time acquire after the date hereof.

 

**SECTION 6.****                            ConditionsPrecedent.**

 

**(A)****       Conditionsto Initial Supplement. **CoBank’sobligation to extend credit under the initial Supplement hereto is subject tothe conditions precedent that CoBank receive, in form and content satisfactoryto CoBank, each of the following:

 

**ThisAgreement, Etc. **Aduly executed copy of this agreement and all instruments and documentscontemplated hereby.

 

**(B)****       Conditionsto Each Supplement. **CoBank’sobligation to extend credit under each Supplement, including the initialSupplement, is subject to the conditions precedent that CoBank receive, in formand content satisfactory to CoBank, each of the following:

 

**(i)****            Supplement. **A duly executed copy of the Supplementand all instruments and documents contemplated thereby.

 

**(ii)****        Evidenceof Authority. **Such certified boardresolutions, certificates of incumbency, and other evidence that CoBank mayrequire that the Supplement, all instruments and documents executed inconnection therewith, and, in the case of initial Supplement hereto, thisagreement and all instruments and documents executed in connection herewith,have been duly authorized and executed.

 

**(iii)****    Feesand Other Charges.** All fees andother charges provided for herein or in the Supplement.

 

**(iv)****       Evidenceof Perfection, Etc. **Such evidenceas CoBank may require that CoBank has a duly perfected first priority lien onall security for the Company’s obligations, and that the Company is incompliance with Section 8(D) hereof.

 

**(C)****       Conditionsto Each Loan. **CoBank’s obligationunder each Supplement to make any loan to the Company thereunder is subject tothe condition that no “Event of Default” (as defined in Section 11 hereof)or event which with the giving of notice and/or the passage of time wouldbecome an Event of Default hereunder (a “Potential Default”), shall haveoccurred and be continuing.

 

**SECTION 7.****                            Representationsand Warranties.**

 

**(A)****       ThisAgreement. **The Company representsand warrants to CoBank that as of the date of this agreement:

 

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**(i)****            Compliance. **The Company and, to the extent contemplated hereunder, each “Subsidiary” (asdefined below), is in compliance with all of the terms of this agreement, andno Event of Default or Potential Default exists hereunder.

 

**(ii)****        Subsidiaries.**  The Company has the following “Subsidiary(ies)” (as defined below):  Primo Piatto, Inc..  For purposes hereof, a “Subsidiary” shallmean a corporation of which shares of stock having ordinary voting power toelect a majority of the board of directors or other managers of suchcorporation are owned, directly or indirectly, by the Company.

 

**(B)****       EachSupplement. **The execution by theCompany of each Supplement hereto shall constitute a representation andwarranty to CoBank that:

 

**(i)****            Applications. **Each representation and warranty and allinformation set forth in any application or other documents submitted inconnection with, or to induceCoBank to enter into, such Supplement, is correct in all material respects asof the date of the Supplement.

 

**(ii)****        ConflictingAgreements, Etc. **This agreement,the Supplements, and all security and other instruments and documents relatinghereto and thereto(collectively, at any time, the “Loan Documents”), do not conflict with, orrequire the consent of any party to, any other agreement to which the Companyis a party or by which it or its property may be bound or affected, and do notconflict with any provision of the Company’s bylaws, articles of incorporation,or other organizational documents.

 

**(iii)****    Compliance. **The Company and, to the extentcontemplated hereunder, each Subsidiary, is in compliance with all of the termsof the Loan Documents (including, without limitation, Section 8(A) of thisagreement on eligibility to borrow from CoBank).

 

**(iv)****       BindingAgreement. **The Loan Documentscreate legal, valid, and binding obligations of the Company which areenforceable in accordance with their terms, except to the extent thatenforcement may be limited by applicable bankruptcy, insolvency, or similarlaws affecting creditors’ rights generally.

 

**SECTION 8.****                            AffirmativeCovenants. **Unless otherwise agreedto in writing by CoBank while this agreement is in effect, the Company agreesto and with respect to Subsections 8(B) through 8(G) hereof, agrees to causeeach Subsidiary to:

 

**(A)****       Eligibility. **Maintain its status as an entityeligible to borrow from CoBank.

 

**(B)****       CorporateExistence, Licenses, Etc. **(i)Preserve and keep in full force and effect its existence and good standing inthe jurisdiction of its incorporation or formation; (ii) qualify and remainqualified to transact business in all jurisdictions where such qualification isrequired; and (iii) obtain and maintain all licenses, certificates, permits,authorizations, approvals, and the like which are material to the conduct ofits business or required by law, rule, regulation, ordinance, code, order, andthe like (collectively, “Laws”).

 

**(C)****       Compliancewith Laws.** Comply in all materialrespects with all applicable Laws, including, without limitation, all Lawsrelating to environmental protection and any patron or member investmentprogram that it may have.  In addition,the Company agrees to cause all persons occupying or present on any of itsproperties, and to cause each Subsidiary to cause all persons occupying orpresent on any of its properties, to comply in all material respects with allenvironmental protection Laws.

 

**(D)****       Insurance. **Maintain insurance with insurancecompanies or associations acceptable to CoBank in such amounts and coveringsuch risks as are usually carried by companies engaged in the same or similarbusiness and similarly situated, and make such increases in the type or amountof coverage as CoBank may request.  Allsuch policies insuring any collateral for the Company’s obligations to CoBankshall have mortgagee or lender loss payable clauses or

 

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endorsements in form and content acceptable to CoBank.  At CoBank’s request, all policies (or suchother proof of compliance with this Subsection as may be satisfactory toCoBank) shall be delivered to CoBank.

 

**(E)****         PropertyMaintenance. **Maintain all of itsproperty that is necessary to or useful in the proper conduct of its businessin good working condition, ordinary wear and tear excepted.

 

**(F)****         Booksand Records. **Keep adequate recordsand books of account in which complete entries will be made in accordance withgenerally accepted accounting principles (“GAAP”) consistently applied.

 

**(G)****       Inspection. **Permit CoBank or its agents, uponreasonable notice and during normal business hours or at such other times asthe parties may agree, to examine its properties, books, and records, and todiscuss its affairs, finances, and accounts, with its respective officers,directors, employees, and independent certified public accountants.

 

**(H)****       Reportsand Notices. **Furnish to CoBank:

 

**(i)****            AnnualFinancial Statements. **As soon as available,but in no event more than 120days after the end of each fiscal year of the Company occurring during the termhereof, annual consolidated and consolidating financial statements of theCompany and its consolidated Subsidiaries, if any, prepared in accordance withGAAP consistently applied.  Suchfinancial statements shall:  (a) beaudited by independent certified public accountants selected by the Company andacceptable to CoBank; (b) be accompanied by a report of such accountantscontaining an opinion thereon acceptable to CoBank; (c) be prepared inreasonable detail and in comparative form; and (d) include a balancesheet, a statement of income, a statement of retained earnings, a statement ofcash flows, and all notes and schedules relating thereto.

 

**(ii)****        InterimFinancial Statements. **As soon asavailable, but in no event more than 50days after the end of each month (other than the last month in each fiscal yearof the Company), a consolidated balance sheet of the Company and itsconsolidated Subsidiaries, if any, as of the end of such month, a consolidated statement ofincome for the Company and its consolidated Subsidiaries, if any, for suchperiod and for the period year to date, and such other interim statements asCoBank may specifically request, all prepared in reasonable detail and incomparative form in accordance with GAAP consistently applied and, if requiredby written notice from CoBank, certified by an authorized officer or employeeof the Company acceptable to CoBank.

 

**(iii)****    Noticeof Default. **Promptly after becomingaware thereof, notice of the occurrence of an Event of Default or a PotentialDefault.

 

**(iv)****       Noticeof Non-Environmental Litigation. **Promptlyafter the commencement thereof, notice of the commencement of all actions, suits,or proceedings before any court, arbitrator, or governmental department,commission, board, bureau, agency, or instrumentality affecting the Company orany Subsidiary which, if determined adversely to the Company or any suchSubsidiary, could have a material adverse effect on the financial condition,properties, profits, or operations of the Company or any such Subsidiary.

 

**(v)****           Noticeof Environmental Litigation, Etc. **Promptlyafter receipt thereof, notice of the receipt of all pleadings, orders, complaints,indictments, or any other communication alleging a condition that may requirethe Company or any Subsidiary to undertake or to contribute to a cleanup orother response under environmental Laws, or which seek penalties, damages,injunctive relief, or criminal sanctions related to alleged violations of suchLaws, or which claim personal injury or property damage to any person as aresult of environmental factors or conditions. 

 

**(vi)****       Bylawsand Articles.**  Promptly after anychange in the Company’s bylaws or articles of incorporation (or likedocuments), copies of all such changes, certified by the Company’s Secretary.

 

**(vii)****  ****Compliance Certificate.** Together with each set of financial statements furnished to CoBankpursuant to Section 8(H) hereof, a certificate of an officer or employeeof the Company acceptable to CoBank setting forth calculations showingcompliance with the financial covenants set forth in Section 10 hereof.

 

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**(viii)****       ****Budgets.**  As soon asavailable, but in no event more than 90 days after the end of any fiscal yearof the Company occurring during the term hereof, copies of the Company’sboard-approved annual budgets and forecasts of operations and capitalexpenditures.

 

**(****ix)**              **Other Information. **Such other information regardingthe condition or operations, financial or otherwise, of the Company or anySubsidiary as CoBank may from time to time reasonably request, including butnot limited to copies of all pleadings, notices, and communications referred toin Subsections 8(H)(iv) and (v) above.

 

**SECTION 9.****                            NegativeCovenants. **Unless otherwise agreedto in writing by CoBank, while this agreement is in effect the Company willnot:

 

**(A)****       Borrowings.** Create, incur, assume, or allow toexist, directly or indirectly, any indebtedness or liability for borrowed money(including trade or bankers’ acceptances), letters of credit, or the deferredpurchase price of property or services (including capitalized leases), exceptfor:  (i) debt to CoBank; (ii) accountspayable to trade creditors incurred in the ordinary course of business; (iii)current operating liabilities (other than for borrowed money) incurred in theordinary course of business; (iv) debtof the Company to Massachusetts Mutual Life Insurance Company, Baystate HealthSystems, Inc., C. M. Life Insurance Company, The Security Mutual Life InsuranceCompany of Lincoln, Nebraska, and the Canada Life Assurance Company, or theirsuccessors in an amount not to exceed $23,500,000.00, and all extensions,renewals and refinancings thereof; (v) purchase money indebtedness for realproperty, plant, and equipment, provided that such indebtedness does not exceed100% of the purchase price of the asset(s) being acquired and such indebtednessdoes not exceed, in the aggregate, $1,000,000.00 at any one time outstanding;and (vi) capitalized leases in existence from time to time.

 

**(B)****       Liens. **Create, incur, assume, or allow to existany mortgage, deed of trust, pledge, lien (including the lien of an attachment,judgment, or execution), security interest, or other encumbrance of any kindupon any of its property, real or personal (collectively, “Liens”).  The foregoing restrictions shall not applyto:  (i) Liens in favor of CoBank; (ii)Liens for taxes, assessments, or governmental charges that are not past due;(iii) Liens and deposits under workers’ compensation, unemployment insurance,and social security Laws; (iv) Liens and deposits to secure theperformance of bids, tenders, contracts (other than contracts for the paymentof money), and like obligations arising in the ordinary course of business asconducted on the date hereof; (v) Liens imposed by Law in favor of mechanics,materialmen, warehousemen, and like persons that secure obligations that arenot past due; (vi) easements, rights-of-way, restrictions, and othersimilar encumbrances which, in the aggregate, do not materially interfere withthe occupation, use, and enjoyment of the property or assets encumbered therebyin the normal course of its business or materially impair the value of theproperty subject thereto;  (vii) Liens existing on the date hereof infavor of Massachusetts Mutual Life Insurance Company, Baystate Health Systems,Inc., C. M. Life Insurance Company, The Security Mutual Life Insurance Companyof Lincoln, Nebraska, and Canada Life Assurance Company or their successors tosecure indebtedness permitted hereunder; and (viii)  purchase money Liens on real property, plant, and equipment,provided that the Lien attaches only to the property being financed and fixedimprovements thereon, the Lien attaches at or about the time the property isacquired, and the debt secured by such Lien is permitted under the terms ofthis agreement.

 

**(C)****       Mergers,Acquisitions, Etc. **Merge orconsolidate with any other entity or acquire all or a material part of theassets of any person or entity, or form or create any new Subsidiary oraffiliate, or commence operations under any other name, organization, orentity, including any joint venture.

 

**(D)****       Transferof Assets. **Sell, transfer, lease,or otherwise dispose of any of its assets, except in the ordinary course ofbusiness.

 

**(E)****         Loans. **Lend or advance money, credit, orproperty to any person or entity, except for:  (i) trade creditextended in the ordinary course of business; and (ii) other loans in an aggregate principal amount not to exceed,at any one time outstanding, $1,000,000.00.

 

**(F)****         ContingentLiabilities. **Assume, guarantee,become liable as a surety, endorse, contingently agree to purchase, or otherwisebe or become liable, directly or indirectly (including, but not limited to, bymeans of a maintenance agreement, an asset or stock purchase agreement, or anyother agreement designed to ensure any creditor against loss), for

 

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or on account of the obligation of any person or entity, except by theendorsement of negotiable instruments for deposit or collection or similartransactions in the ordinary course of the Company’s business.

 

**(G)****       Changein Business. **Engage in any businessactivities or operations substantially different from or unrelated to theCompany’s present business activities or operations.

 

**SECTION 10.****                     FinancialCovenants. **Unless otherwise agreedto in writing, while this agreement is in effect:

 

**(A)****      ****Current Ratio.**  TheCompany and its consolidated Subsidiaries will have at the end of each periodfor which financial statements are required to be furnished pursuant toSection 8(H) hereof, a ratio of consolidated current assets to consolidatedcurrent liabilities (both as determined in accordance with GAAP consistentlyapplied) of not less than 1.10 to 1.0 through and including July 31, 2004,and of not less than 1.25 to 1.0 thereafter.

 

**(B)****      ****Long Term Debt to Net Worth Ratio.**  The Company and its consolidatedSubsidiaries will have at the end of each period for which financial statementsare required to be furnished pursuant to Section 8(H) hereof, a ratio ofconsolidated Long Term Debt to consolidated Net Worth of not more than 1.10 to1.  Long Term Debt shall mean the sum oflong-term liabilities, minus deferred taxes payable, plus current liabilities,minus the quotient of current assets divided by 1.35, plus the present value ofoperating leases (all, together with Net Worth, as calculated in accordancewith GAAP consistently applied).

 

**(C)****      ****Consolidated Funded Debt to Consolidated Cash Flow Ratio.**  The Company and its consolidatedSubsidiaries will have at the end of each fiscal quarter of the Company, aConsolidated Funded Debt to Consolidated Cash Flow of not more than 4.0 to 1.0calculated on a trailing four quarter basis through and includingApril 30, 2004, and of not more than 3.0 to 1.0 thereafter.  Consolidated Funded Debt shall mean all debtwhich would, in accordance with GAAP, constitute long term debt and includingany current portion thereof including: (a) any debt with a maturity of more than one year after the creation ofsuch debt; (b) any debt outstanding under a revolving credit or similaragreement providing for borrowings (and renewables and extensions thereof)which pursuant to its terms would constitute long term debt in accordance withGAAP; (c) any Capital Lease obligation; and (d) any guarantee with respect toFunded Debt of another person. Notwithstanding anything to the contrary contained herein any debtoutstanding under a revolving credit or similar agreement providing borrowingswhich is paid down for a period of 30 consecutive days during any 12 monthsperiod (and not merely refinanced with a short term credit facility) will notbe deemed to constitute Funded Debt. Consolidated Cash Flow shall mean the sum of Consolidated Net Earningsafter taxes of the Company and its Subsidiaries plus:  (i) provision for any applicable income taxes; (ii) depreciationand amortization; and (iii) Consolidated Interest Expense for the period.

 

**SECTION 11.****                     Eventsof Default. **Each of the followingshall constitute an “Event of Default” under this agreement:

 

**(A)****       PaymentDefault. **The Company should fail tomake any payment to, or to purchase any equity in, CoBank when due.

 

**(B)****       Representationsand Warranties. **Any representationor warranty made or deemed made by the Company herein or in any Supplement,application, agreement, certificate, or other document related to or furnishedin connection with this agreement or any Supplement, shall prove to have beenfalse or misleading in any material respect on or as of the date made or deemedmade.

 

**(C)****       CertainAffirmative Covenants. **The Companyor, to the extent required hereunder, any Subsidiary should fail to perform orcomply with Sections 8(A) through 8(H)(ii), 8(H)(vi), (vii), and (viii), or any reporting covenant set forth in anySupplement hereto, and such failure continues for 15 days after written noticethereof shall have been delivered by CoBank to the Company.

 

**(D)****       OtherCovenants and Agreements. **TheCompany or, to the extent required hereunder, any Subsidiary should fail toperform or comply with any other covenant or agreement contained herein or inany other Loan Document or shall use the proceeds of any loan for anunauthorized purpose.

 

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**(E)****         Cross-Default. **The Company should, after any applicablegrace period, breach or be in default under the terms of any other agreementbetween the Company and CoBank.

 

**(F)****         OtherIndebtedness. **The Company or anySubsidiary should fail to pay when due any indebtedness to any other person orentity for borrowed money or any long-term obligation for the deferred purchaseprice of property (including any capitalized lease), or any other event occurswhich, under any agreement or instrument relating to such indebtedness orobligation, has the effect of accelerating or permitting the acceleration ofsuch indebtedness or obligation, whether or not such indebtedness or obligationis actually accelerated or the right to accelerate is conditioned on the givingof notice, the passage of time, or otherwise.

 

**(G)****       Judgments.** A judgment, decree, or order forthe payment of money shall be rendered against the Company or any Subsidiaryand either:  (i) enforcement proceedingsshall have been commenced; (ii) a Lien prohibited under Section 9(B)hereof shall have been obtained; or (iii) such judgment, decree, or ordershall continue unsatisfied and in effect for a period of 20 consecutive dayswithout being vacated, discharged, satisfied, or stayed pending appeal.

 

**(H)****       Insolvency,Etc. **The Company or any Subsidiaryshall:  (i) become insolvent or shallgenerally not, or shall be unable to, or shall admit in writing its inabilityto, pay its debts as they come due; or (ii) suspend its businessoperations or a material part thereof or make an assignment for the benefit ofcreditors; or (iii) apply for, consent to, or acquiesce in the appointmentof a trustee, receiver, or other custodian for it or any of its property or, inthe absence of such application, consent, or acquiescence, a trustee, receiver,or other custodian is so appointed; or (iv) commence or have commenced againstit any proceeding under any bankruptcy, reorganization, arrangement,readjustment of debt, dissolution, or liquidation Law of any jurisdiction.

 

**(I)****            MaterialAdverse Change. **Any materialadverse change occurs, as reasonably determined by CoBank, in the Company’sfinancial condition, results of operation, or ability **to** perform its obligationshereunder or under any instrument or document contemplated hereby.

 

**(J)****        ****Revocation of Guaranty.**  Anyguaranty, suretyship, subordination agreement, maintenance agreement, or otheragreement furnished in connection with the Company’s obligations hereunder andunder any Supplement (including the Continuing Guarantee dated June 20,2001, of Primo Piatto, Inc. ) shall, at any time, cease to be in full force andeffect, or shall be revoked or declared null and void, or the validity orenforceability thereof shall be contested by the guarantor, surety or othermaker thereof (the “Guarantor”), or the Guarantor shall deny any furtherliability or obligation thereunder, or shall fail to perform its obligationsthereunder, or any representation or warranty set forth therein shall bebreached, or the Guarantor shall breach or be in default under the terms of anyother agreement with CoBank (including any loan agreement or securityagreement), or a default set forth in Subsections (F) through (H) hereof shalloccur with respect to the Guarantor.

 

**SECTION 12.****                     Remedies. **Upon the occurrence and during thecontinuance of an Event of Default or any Potential Default, CoBank shall haveno obligation to continue to extend credit to the Company and may discontinuedoing so at any time without prior notice. For all purposes hereof, the term “Potential Default” means theoccurrence of any event which, with the passage of time or the giving of noticeor both would become an Event of Default. In addition, upon the occurrence and during the continuance of any Eventof Default, CoBank may, upon notice to the Company, terminate any commitmentand declare the entire unpaid principal balance of the loans, all accruedinterest thereon, and all other amounts payable under this agreement, allSupplements, and the other Loan Documents to be immediately due andpayable.  Upon such a declaration, theunpaid principal balance of the loans and all such other amounts shall becomeimmediately due and payable, without protest, presentment, demand, or furthernotice of any kind, all of which are hereby expressly waived by theCompany.  In addition, upon such anacceleration:

 

**(A)****       Enforcement. **CoBank may proceed to protect, exercise,and enforce such rights and remedies as may be provided by this agreement, anyother Loan Document or under Law.  Eachand every one of such rights and remedies shall be cumulative and may beexercised from time to time, and no failure on the part of CoBank to exercise,and no delay in exercising, any right or remedy shall operate as a waiverthereof, and no single or partial exercise of any right or remedy shallpreclude any other or future exercise thereof, or the exercise of any otherright.  Without limiting the

 

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foregoing, CoBank may hold and/or set off and apply against theCompany’s obligations to CoBank the proceeds of any equity in CoBank, any cashcollateral held by CoBank, or any balances held by CoBank for the Company’saccount (whether or not such balances are then due).

 

**(B)****       Applicationof Funds.** CoBank may apply allpayments received by it to the Company’s obligations to CoBank in such orderand manner as CoBank may elect in its sole discretion.

 

In addition to the rights and remedies set forth above:  (i) if the Company fails to purchaseany equity in CoBank when required or fails to make any payment to CoBank whendue, then at CoBank’s option in each instance, such payment shall bear interestfrom the date due to the date paid at 4% per annum in excess of the rate(s) ofinterest that would otherwise be in effect on that loan; and (ii) afterthe maturity of any loan (whether as a result of acceleration or otherwise),the unpaid principal balance of such loan (including without limitation,principal, interest, fees and expenses) shall automatically bear interest at 4%per annum in excess of the rate(s) of interest that would otherwise be ineffect on that loan.  All interestprovided for herein shall be payable on demand and shall be calculated on thebasis of a year consisting of 360 days.

 

**SECTION 13.****                     BrokenFunding Surcharge. **Notwithstandingany provision contained in any Supplement giving the Company the right to repayany loan prior to the date it would otherwise be due and payable, the Companyagrees to provide three Business Days’ prior written notice for any prepaymentof a fixed rate balance and that in the event it repays any fixed rate balanceprior to its scheduled due date or prior to the last day of the fixed rateperiod applicable thereto (whether such payment is made voluntarily, as aresult of an acceleration, or otherwise), the Company will pay to CoBank asurcharge in an amount equal to the greater of:  (i) an amount which would result in CoBank being made whole (on apresent value basis) for the actual or imputed funding losses incurred byCoBank as a result thereof; or (ii) $300.00. Notwithstanding the foregoing, in the event any fixed rate balance isrepaid as a result of the Company refinancing the loan with another lender orby other means, then in lieu of the foregoing, the Company shall pay to CoBanka surcharge in an amount sufficient (on a present value basis) to enable CoBankto maintain the yield it would have earned during the fixed rate period on theamount repaid.  Such surcharges will becalculated in accordance with methodology established by CoBank (a copy ofwhich will be made available to the Company upon request).

 

**SECTION 14.****                     CompleteAgreement, Amendments. **This agreement,all Supplements, and all other instruments and documents contemplated herebyand thereby, are intended by the parties to be a complete and final expressionof their agreement.  No amendment,modification, or waiver of any provision hereof or thereof, and no consent toany departure by the Company herefrom or therefrom, shall be effective unlessapproved by CoBank and contained in a writing signed by or on behalf of CoBank,and then such waiver or consent shall be effective only in the specific instanceand for the specific purpose for which given. In the event this agreement is amended or restated, each such amendmentor restatement shall be applicable to all Supplements hereto.

 

**SECTION 15.****                     OtherTypes of Credit.** From time to time,CoBank may issue letters of credit or extend other types of credit to or forthe account of the Company.  In theevent the parties desire to do so under the terms of this agreement, suchextensions of credit may be set forth in any Supplement hereto and thisagreement shall be applicable thereto.

 

**SECTION 16.****                     ApplicableLaw. **Except to the extent governedby applicable federal law, this agreement and each Supplement shall be governedby and construed in accordance with the laws of the State of Colorado, withoutreference to choice of law doctrine.

 

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**SECTION 17.****                     Notices. **All notices hereunder shall be inwriting and shall be deemed to be duly given upon delivery if personallydelivered or sent by telegram or facsimile transmission, or three days aftermailing if sent by express, certified or registered mail, to the parties at thefollowing addresses (or such other address for a party as shall be specified bylike notice):

 
| If to CoBank, as follows:                     | If to the Company, as follows:           |
|-----------------------------------------------|------------------------------------------|
|                                          |                                     |
| For  general correspondence purposes:         | Dakota  Growers Pasta Company, Inc.      |
| P.O.  Box 5110                                | One  Pasta Avenue                        |
| Denver,  Colorado  80217-5110            | Carrington,  North Dakota  58421    |
|                                          |                                     |
| For  direct delivery purposes, when desired:  |                                     |
| 5500  South Quebec Street                     |                                     |
| Greenwood  Village, Colorado  80111-1914 |                                     |
|                                          |                                     |
| Attention:  Credit Information Services  | Attention:  Chief Financial Officer |
| Fax  No.:  (303) 224-6101                | Fax No.:  (701) 652-3552            |

 

**SECTION 18.****                     Taxesand Expenses. **To the extent allowedby law, the Company agrees to pay all reasonable out-of-pocket costs andexpenses (including the fees and expenses of counsel retained or employed byCoBank) incurred by CoBank and any participants from CoBank in connection withthe origination, administration, collection, and enforcement of this agreementand the other Loan Documents, including, without limitation, all costs andexpenses incurred in perfecting, maintaining, determining the priority of, andreleasing any security for the Company’s obligations to CoBank, and any stamp,intangible, transfer, or like tax payable in connection with this agreement orany other Loan Document.

 

**SECTION 19.****                     Effectivenessand Severability. **This agreementshall continue in effect until: (i) all indebtedness and obligations of the Company under thisagreement, all Supplements, and all other Loan Documents shall have been paidor satisfied; (ii) CoBank has no commitment to extend credit to or for theaccount of the Company under any Supplement; and (iii) either party sendswritten notice to the other terminating this agreement.  Any provision of this agreement or any otherLoan Document which is prohibited or unenforceable in any jurisdiction shall,as to such jurisdiction, be ineffective to the extent of such prohibition orunenforceability without invalidating the remaining provisions hereof orthereof.

 

**SECTION 20.****                     Successorsand Assigns. **This agreement, eachSupplement, and the other Loan Documents shall be binding upon and inure to thebenefit of the Company and CoBank and their respective successors and assigns,except that the Company may notassign or transfer its rights or obligations under this agreement, anySupplement or any other Loan Document without the prior written consent ofCoBank.

 

**SECTION 21.****                    ****Participations, Etc.**  Fromtime to time, CoBank may sell to one or more banks, financial institutions orother lenders a participation in one or more of the loans or other extensionsof credit made pursuant to this agreement. However, no such participation shall relieve CoBank of any commitmentmade to the Company under any Supplement hereto.  In connection with the foregoing, CoBank may disclose informationconcerning the Company and its Subsidiaries to any participant or prospectiveparticipant, provided that such participant or prospective participant agreesto keep such information confidential. CoBank agrees that all Loans that are made by CoBank and that areretained for its own account and are not included in a sale of participationinterest shall be entitled to patronage distributions in accordance with thebylaws of CoBank and its practices and procedures related to patronagedistribution.  Accordingly, all Loansthat are included in a sale of participation interest shall not be entitled topatronage distributions.  A sale ofparticipation interest may include certain voting rights of the participantsregarding the loans hereunder (including without limitation the administration,servicing and enforcement thereof). CoBank agrees to give written notification to the Company of any sale ofparticipation interests.

 

**SECTION 22.****                    ****Agency and Intercreditor Agreement.**  The Company acknowledges that all loans madeby CoBank to the Company are subject to the terms of an Agency andIntercreditor Agreement dated as of July 15, 1998, by

 

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and between CoBank (under the name of itspredecessor, St. Paul Bank for Cooperatives), Massachusetts Mutual LifeInsurance Company, MML Bay State Life Insurance Company, C. M. Life InsuranceCompany, The Security Mutual Life Insurance Company of Lincoln, Nebraska, andThe Canada Life Assurance Company (referred to collectively as the“Lenders”).  The Company herebyreaffirms and consents to the terms thereof.

 

**INWITNESS WHEREOF**, the parties have caused thisagreement to be executed by their duly authorized officers as of the date shownabove.

 

| **CoBANK, ACB** | **DAKOTA  GROWERS PASTA COMPANY,  INC.** |
|-----------------|------------------------------------------|
|            |                                     |   |   |
| **By:**         | **/s/  Teresa L. Fountain**              |   | **By:** | **/s/  Thomas Friezen** |   |
|            |                                     |   |   |   |   |
| **Title:**      | **Assistant  Corporate Secretary**       |   | **Title:** | **CFO** |   |

 

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