Document:

Exhibit 10.3

 

2005 LINE OF CREDIT LOAN AGREEMENT

 

THIS 2005 LINE OF CREDIT LOAN AGREEMENT (this “Agreement” or “Loan Agreement”) is made
effective this 31st day of May 2005, by and between DNA Dreamfields
Company, LLC, an Ohio limited liability company (the “Borrower”) and Dakota
Growers Pasta Company, Inc., a North Dakota corporation (the “Lender”).

 

Borrower desires that Lender lend Borrower the sum of up to Five
Million and no/100 Dollars ($5,000,000.00) (the “Loan”).  In connection with
the Loan, the Borrower will execute and deliver for the Lender’s benefit:  (i) a Promissory Note, dated of even date;
(ii) this Loan Agreement; and (iii) a LLC Unit Pledge Agreement signed by each
owner of an equity interest in the Borrower; and (iv) any other documents necessary
to document and secure the Loan.  All the
documents listed in (i)-(iv) above, shall be collectively referred to as the “Loan
Documents”.

 

This Agreement sets forth certain additional obligations undertaken by
Borrower to induce Lender to make the Loan.

 

ACCORDINGLY, to induce Lender to make the Loan to Borrower, and for
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower hereby represents, warrants and agrees for the
benefit of Lender that:

 

1.                                       THE
LOAN.  Provided that there is no
Event of Default and subject to the conditions set forth hereinafter
(including, without limitations, the conditions set forth in Section 2
hereof), Lender agrees to lend to the Borrower from time to time an aggregate
amount not to exceed Five Million Dollars ($5,000,000.00).  Such amounts shall be advanced by Lender to
Borrower as requested in writing by Borrower. 
Subject to the terms and conditions of this Agreement, amounts borrowed
hereunder may be repaid and reborrowed from time to time.  The Loan shall be evidenced by the Promissory
Note of the Borrower which will be made payable to the order of the
Lender.  The maximum principal amount of the
Loan shall be FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00).  Interest at the annual rate determined in
accordance with Schedule 1 hereto shall accrue on amount of the Loan then
outstanding until such amounts are paid in full.  Interest shall be payable on the thirtieth
day of each month.  The Loan shall be
payable in full on May 31, 2010; provided, however, that payment of the
principal amounts outstanding from time to time shall commence upon the earlier
to occur of a) ten (10) months after the date of the first advance from the
Lender to the Borrower pursuant to this Loan Agreement and the associated
Promissory Note and b) the principal amount outstanding under this Loan
Agreement and the associated Promissory Note equals the maximum loan amount of
Five Million Dollars ($5,000,000).  The
date of the earlier event to occur of a) or b) above shall be referred to as
the “Principal Reduction Date”.   
Commencing thirty (30) days after the end of the calendar month in which
the Principal Reduction Date occurred and continuing each month thereafter
while any principal amounts remain outstanding hereunder, the Borrower shall
pay to the Lender an amount equal to the “Net Income” of Borrower as determined
pursuant to generally accepted accounting principles with respect to a
particular calendar month less any cash or other reserve established by the
Borrower pursuant to the decision of the “Managing Member” (as defined in the
Borrower’s Amended and Restated Operating Agreement).

 

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Whenever the Borrower desires that the Lender make an advance, the
Borrower shall provide notice to the Lender, setting forth the date on which
the proposed advance will be made and the aggregate principal amount of such
proposed advance.

 

Each request for an advance under the Loan shall be deemed a
representation and warranty by the Borrower that on the advance date and after
giving effect to the advance, the applicable conditions specified in Section 2
below have been and will be satisfied.

 

If the Promissory Note is not paid in full on the Maturity Date (or the
date as extended), payments received shall be applied first against costs of
collection and late fees, if any, then to accrued interest, and then to unpaid
principal.

 

For purposes of this Agreement, a “Material Adverse Effect” shall mean
either (1) a material adverse change in, or a material adverse effect upon, the
operations, business, properties, condition (financial or otherwise) or
prospects of the Borrower or (ii) a material adverse effect on the ability of
the Borrower to perform or comply with in any material respect any term or
condition of any of the Loan Documents or avoid any Event of Default.

 

2.                                       CONDITIONS
PRECEDENT.  The obligations of
the Lender hereunder and the obligation of the Lender to make advances to
Borrower of the Loan is subject to the satisfaction of the following
conditions:

 

(a)                                  The Lender shall have
received the following:

 

(i)                       a Promissory Note in the form of
Exhibit A hereto (the “Promissory
Note”), duly executed by the Borrower;

 

(ii)                    a copy of the resolution of the
Board of Managers of the Borrower authorizing the execution, delivery and
performance by the Borrower of this Agreement and each of the Loan Documents
applicable to the Borrower;

 

(iii)                 a LLC Unit Pledge Agreement in the
form of Exhibit B hereto (the “LLC Unit Pledge Agreement”);

 

(iv)                With each request for an advance, a
compliance certificate as described in Section 24.

 

(b)                                 The representations
and warranties of Borrower contained herein, and in each other Loan Document,
shall be true and correct in all material respects on and as of each advance
date, with the same force and effect as if made on such date.

 

(c)                                  No Event of Default
shall exist on any advance date or will exist after giving effect to the
advance under the Loan made on such date.

 

(d)                                 No event, change, or
development has occurred which has had or that could reasonably be expected to
result in a Material Adverse Effect on Borrower after the

 

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date hereof.

 

3.                                       REPRESENTATIONS
AND WARRANTIES.  The Borrower
represents and warrants to Lender that:

 

(a)                                  Organizational Status/Corporate Powers/Qualification.  Borrower is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Ohio. Borrower has all the necessary power to own its property and to carry on
its business as now conducted.  The
Borrower is duly qualified and authorized to do business and is in good
standing in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing could not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.

 

(b)                                 Authorization of Borrowing/Validity of Loan Documents.   The Borrower is duly authorized and
empowered to execute, deliver and perform all Loan Documents applicable to the
Borrower and to borrow money from Lender. The execution and delivery of all
Loan Documents applicable to the Borrower, and the performance by Borrower of
its obligations thereunder, do not and will not violate or conflict with any
provision of law, regulation or rule, any order, judgment, injunction, decree
or other restriction of any court or other agency of government, or
organizational documents of Borrower and do not or will not violate or conflict
with, or cause any default or event of default to occur under, any agreement to
which the Borrower is a party or by which it or any of its properties is bound,
or result in the creation or imposition of any lien upon any of the properties
or assets of the Borrower other than liens in favor of the Lender.  The execution and delivery of all Loan
Documents applicable to the Borrower have been duly approved by all necessary
action of the Board of Managers of Borrower; and all Loan Documents applicable
to the Borrower have in fact been duly executed and delivered by Borrower and
constitute its lawful and binding obligations, legally enforceable against it
in accordance with their respective terms (subject, as to enforceability, to
limitations resulting from bankruptcy, insolvency and other similar laws
affecting creditors’ rights generally).

 

(c)                                  No Usury.  The transaction evidenced by this Agreement
does not violate any applicable law pertaining to usury or the payment of
interest on loans.

 

(d)                                 No Prohibitions.  No officer, employee or agent of, or
consultant to Borrower is prohibited by law, by regulation, by contract, or by
the terms of any license, franchise, permit, certificate, approval or consent
from participating in the business of Borrower as officer, employee or agent
of, or as consultant to, Borrower or is the subject of any pending or, to
Borrower’s best knowledge based upon reasonable inquiry, threatened proceeding
which, if determined adversely, would or could result in such a prohibition.

 

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(e)                                  Consents and Approvals.  The execution, delivery and performance of
the Loan Documents by the Borrower are not and will not be subject to the
approval or consent of, or to any requirement of registration with or
notification to, any federal, state or local regulatory body, administrative
agency or other person.

 

(f)                                    Financial Statements.  All financial statements, as of the dates of
such statements, of the Borrower heretofore furnished to the Lender are
complete and correct in all material respects and fairly present the financial
condition, operating results and cash flows of the Borrower, as of and for the
period ended on said dates, and have been prepared in accordance with generally
accepted accounting principles (“GAAP”),
consistently applied (except for the absence of notes and subject to immaterial
year-end audit adjustments as to the interim statements).  Since the date of the most recent set of
financial statements delivered by the Borrower to the Lender, there has been no
event, change or development that has had or that could reasonably be expected
to result in a Material Adverse Effect.

 

(g)                                 Litigation.  There is no action, suit or proceeding at law
or in equity pending or, to the knowledge of Borrower, threatened against or
affecting the Borrower, or any basis therefor, which, if adversely
determined:  (i) could have or reasonably
be expected to result in a Material Adverse Effect or would question the
validity or enforceability of any of the Loan Documents or any instrument,
document, or other agreement related hereto or required hereby; or (ii) would
impair the ability of the Borrower to perform its obligations under the Loan
Documents applicable to the Borrower.

 

(h)                                 Liabilities.  The Borrower has no material liabilities and,
to the best of its knowledge, has no material contingent liabilities, except as
reflected or expressly reserved against in the financial statements referred to
in Section 3(f) above and except liabilities, obligations, commitments and
losses incurred after March 31, 2005 in the ordinary course of business,
which, in both cases, have not had or could reasonably be expected to result
in, either individually or in the aggregate, a Material Adverse Effect.

 

(i)                                     Title to Properties and Assets; Liens.  The Borrower has good and marketable title to
its properties and assets, and holds a valid leasehold interest with respect to
the property and assets it leases, in each case subject to no mortgage, pledge,
lien, lease, encumbrance or charge, other than (i) the lien created by this
Agreement, (ii) those resulting from taxes that have not yet become delinquent,
(iii) liens and encumbrances that do not materially detract from the value of
the property subject thereto or materially impair the operations of the
Borrower and (iv) those that have otherwise arisen in the ordinary course of
business.

 

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(j)                                     Patents and Trademarks.  All U.S. and foreign patents and patent
applications, and U.S. and foreign trademarks and service marks and
applications therefor, owned by, assigned to or licensed to the Borrower are
valid.  The Borrower owns or has a valid
right to use all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information and other proprietary rights and processes
(collectively, the “Intellectual Property Rights”) necessary for its business as now
conducted and as proposed to be conducted. 
The Borrower has not received a written notice that the Intellectual
Property Rights used by the Borrower violates or infringes upon the rights of
any person.  To the knowledge of the
Borrower, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another person of any of the Intellectual Property
Rights.

 

(k)                                  Tax
Returns and Payments.  The
Borrower has filed all tax returns (federal, state and local) required to be
filed by it.  All taxes shown to be due
and payable on such returns, any assessments imposed, and, to the Borrower’s
knowledge, all other taxes due and payable by the Borrower have been paid or
will be paid prior to the time they become delinquent.  The Borrower has not been advised
(i) that any of its returns, federal, state or other, have been or are
being audited as of the date hereof or (ii) of any deficiency in
assessment or proposed judgment to its federal, state or other taxes.  The Borrower has no knowledge of any
liability of any tax to be imposed upon the properties or assets of the
Borrower as of the date of this Agreement that is not adequately provided for.

 

(l)                                     Insurance.  The Borrower has insurance relating to its
business and covering property, fire, casualty, liability, workers’ compensation
and all other forms of insurance customarily obtained by businesses in the same
industry.  Such insurance (i) is in full
force and effect, (ii) insures against risks of the kind customarily insured
against and in amounts customarily carried by businesses similarly situated and
(iii) provides adequate insurance coverage for the activities of the Borrower.

 

(m)                               True and Correct Information.  All financial and other information provided
to the Lender by or on behalf of the Borrower in connection with the Borrower’s
request for the Loan are true and correct in all material respects and do not
contain any untrue statements of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and, as to
projections or valuations, present a good faith opinion as to such projections
and valuations.

 

(n)                                 Agreements.  The Borrower is not in default under or in
violation of any agreement or instrument to which it is a party or by which it
or any of its properties is bound (whether or not such default or violation has
been waived.)

 

4.                                       AFFIRMATIVE
COVENANTS.  In addition to the
covenants and agreements of the Borrower set forth and contained in the Loan Documents
applicable to the Borrower and the

 

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documents related thereto, the Borrower hereby covenants and agrees to
and with the Lender that, so long as the Promissory Note remains unpaid, the
Borrower will:

 

(a)                                  Conduct of Business.  Preserve all of the rights, privileges and
franchises necessary or desirable in the normal conduct of its business;
conduct its business in an orderly, efficient and regular manner; and keep all
of the assets and properties necessary in its business in good working order
and condition, ordinary wear and tear excepted.

 

(b)                                 Inspections/Books and Records.  At all times keep proper books of record and
accounts for itself and its operations thereon, in which full and correct
entries will be made of its transactions, business and affairs, pursuant to a
system of accounting established and administered in accordance with generally
accepted accounting principles.  Upon 24
hours oral or written request of the Lender, the Borrower shall provide any
duly authorized representative of the Lender access during normal business
hours to, and permit such representative to reasonably examine, copy or make
extracts from, any and all books, records and documents in the Borrower’s
possession or control relating to any of the representations or covenants of
the Borrower hereunder or in the Loan Documents applicable to the Borrower
(such access to be given immediately upon request in the case of any emergency
or a material change in financial or other condition of the Borrower).  Lender shall maintain the confidentiality of
such books, records, and documents, except for disclosure to Lender’s
accountants and lawyers, except as may be necessary to enforce Lender’s rights
hereunder or under the Loan Documents applicable to the Borrower, and except
for information that is generally available to the public.

 

(c)                                  Change in Nature of Business.  Not make any material change in the nature of
the business of the Borrower as carried on at the date hereof or as contemplated
at the date hereof as previously disclosed in writing to Lender.

 

(d)                                 Collection of Proceeds.  Cooperate with Lender in obtaining for Lender
the benefits of any proceeds lawfully or equitably payable to it in connection
with the transaction contemplated hereby and the collection of any indebtedness
or obligation of Borrower to Lender incurred hereunder.

 

(e)                                  Expenses.  Reimburse Lender, as provided in Section 8
hereof.  The obligations of Borrower
under this Section 4(e) shall survive the repayment of the Promissory Note
and the Loan.

 

5.                                       NEGATIVE
COVENANTS.  Borrower covenants
and agrees that, without the prior consent of Lender, and so long as the
Promissory Note remains unpaid, it will not:

 

(a)                                  No Merger.  Consolidate or merge with any other entity
where the Borrower is not the surviving entity of such consolidation or merger
or where the Borrower’s shareholders immediately preceding a consolidation or
merger do not hold at least a majority of the total voting power of the
outstanding voting securities of the surviving or continuing entity immediately
following such consolidation or merger;

 

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or sell, transfer or otherwise dispose of all or any material portion
of its assets and properties to any other entity (whether in one or a series of
transactions); or

 

(b)                                 No Substantial Changes in Business.  Substantially alter the nature of the
business in which it is engaged as of the date hereof, or engage in any line of
business substantially different from the current business; or

 

(c)                                  No Defaults.  Permit any material breach, default or event
of default to occur under any note, loan agreement, indenture, lease mortgage,
contract for deed, security agreement, depository agreement, or other
contractual obligation binding upon Borrower which is not cured within the
applicable cure provisions thereof and which material breach, default or event
of default has a Material Adverse Effect on the Borrower.

 

(d)                                 No
Dividends and Distributions. 
Declare or make any dividend, distribution or payment of any nature
(whether in cash, securities or other property) on account of or in respect of
any shares of capital stock (or warrants, options or rights therefor),
including any payment on account of the purchase, redemption or acquisition of
any shares of capital stock (or warrants, options or rights therefor).

 

(e)                                  No
Indebtedness.  Incur,
create, issue, assume or suffer to exist any Indebtedness that ranks equal or
senior in right of payment of the Promissory Note without the prior written
consent of the Lender.

 

(f)                                    Indebtedness Ratio.  Permit the Borrower’s “Indebtedness Ratio”
(as defined below), to be greater than: 2.0 as of December 31, 2005; 1.5
as of September 30, 2006; and 1.25 as of June 30, 2007.   (Each such date is referred to herein as a “Measuring
Date”.)    For purposes of this subpart
(f), the Borrower’s Indebtedness Ratio shall mean the result obtained by
dividing:  i) the Borrower’s Indebtedness
exclusive of any amounts payable by the Borrower to trade creditors and any
amounts payable with respect to short-term account accruals and adjustments as
of the applicable Measuring Date by ii) the Borrower’s income during the twelve
(12) calendar months preceding the applicable Measuring Date, determined
without regard to the interest paid or accrued by the Borrower during such
twelve (12) month period and the advertising costs paid or accrued by the
Borrower during such period.

 

(g)                                 Definitions Relating to Covenants.  For purposes of this Agreement, the following
terms relating to the covenants shall have the meanings specified in this Section 5(g):

 

“Capitalized Lease”:  A lease of (or other agreement conveying the
right to use) real or personal property with respect to which at least a
portion of the rent or other amounts thereon constitute Capitalized Lease
Obligations.

 

“Capitalized Lease
Obligations”:  As to any person, the
obligations of such person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real

 

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or personal
property which obligations are required to be classified and accounted for as a
capital lease on a balance sheet of such person under GAAP (including Statement
of Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board), and, for purposes of this Agreement, the amount of such obligations
shall be the capitalized amount thereof, determined in accordance with GAAP
(including such Statement No. 13).

 

“Contingent
Obligation”:  With respect to any person
at the time of any determination, without duplication, any obligation,
contingent or otherwise, of such person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other person (the “primary
obligor”) in any manner, whether directly or otherwise: (a) to purchase or pay
(or advance or supply funds for the purchase or payment of) such Indebtedness
or to purchase (or to advance or supply funds for the purchase of) any direct
or indirect security therefor, (b) to purchase property, securities or services
for the purpose of assuring the owner of such Indebtedness of the payment of
such Indebtedness, (c) to maintain working capital, equity capital or other
financial statement condition of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or otherwise to protect the owner
thereof against loss in respect thereof, or (d) entered into for the purpose of
assuring in any manner the owner of such Indebtedness of the payment of such
Indebtedness or to protect the owner against loss in respect thereof; provided,
that the term “Contingent Obligation” shall not include endorsements for
collection or deposit, in each case in the ordinary course of business.

 

“Indebtedness”:
With respect to any person at the time of any determination, without
duplication, all obligations, contingent or otherwise, which in accordance with
GAAP should be classified upon such person’s balance sheet as liabilities, but
in any event including: (a) obligations for borrowed money, (b) obligations
evidenced by bonds, debentures, notes or other similar instruments, (c)
obligations upon which interest charges are customarily paid or accrued, (d)
obligations under conditional sale or other title retention agreements relating
to property purchased by such person, (e) obligations for the deferred purchase
price of property or services, (f) obligations secured by any Lien on property
owned or acquired subject thereto, whether or not the obligation secured
thereby has been assumed and whether or not the obligation secured is the
obligation of the owner or another party, (g) Capitalized Lease Obligations and
Contingent Obligations; (i) net liabilities under any interest rate swap,
collar or other interest rate hedging agreement, and (j) all obligations of any
partnership or joint venture in which Borrower is or may become personally
liable.

 

“Lien”:  With respect to any person, any security
interest, mortgage, pledge, lien, charge, encumbrance, title retention
agreement or analogous instrument or device (including the interest of each
lessor under any Capitalized Lease), in, of or on any assets or properties of
such person, now owned or hereafter acquired, whether arising by agreement or
operation of law.

 

6.                                       EVENTS
OF DEFAULT.  Each of the
following occurrences shall constitute an Event of Default under this Agreement
and the Promissory Note (herein called an “Event
of Default”):

 

(a)                                  Borrower shall fail
to pay when due any payment of principal or interest on the Promissory Note, or
any other obligation required to be made by Borrower pursuant to this Agreement
or any other Loan Document applicable to the Borrower (the

 

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“Obligations”) when due, and such failure shall
continue through ten (10) days after the Lender gives written notice of such
default to the Borrower; or

 

(b)                                 Borrower shall fail to
observe or perform any other covenant, agreement or provision contained in this
Agreement, the Promissory Note, or under any other assignment, conveyance,
instrument or agreement now in effect or hereafter made between Borrower and
Lender, and such failure shall continue for thirty (30) days after the date the
Lender gives notice of such failure to the Borrower.

 

(c)                                  Any
representations or warranties made by Borrower in this Agreement, or in any
other assignment, conveyance, instrument or agreement, or in any financial
statements, or reports or certificates heretofore or at any time hereafter
submitted by or on behalf of Borrower to Lender, shall prove to have been false
or materially misleading when made or at any later date during the term of this
Loan; or

 

(d)                                 Payment of any
material indebtedness of Borrower, other than the obligations under this
Agreement, shall be demanded prior to its stated maturity date or the maturity
of any such indebtedness shall be accelerated or any condition or circumstance
shall have occurred which permits any creditor of the Borrower, acting
individually or with the consent of other creditors, to accelerate the maturity
of any such indebtedness and such payment by the Borrower or acceleration of
such indebtedness by a creditor has or will have a Material Adverse Effect on
the financial condition of Borrower; or

 

(e)                                  Borrower shall become
insolvent or fail to pay its debts as they become due, shall make an assignment
for the benefit of its creditors or shall admit in writing its inability to pay
its debts as they become due; any bankruptcy, reorganization, debt arrangement
or other proceeding under any bankruptcy law or insolvency law shall be
instituted by or against the Borrower; or the Borrower shall have a custodian,
trustee or receiver appointed for Borrower or for a substantial part of the
property thereof and such custodian, trustee or receiver shall not be discharged
within thirty (30) days of the appointment; or

 

(f)                                    Borrower shall be
dissolved, liquidated or wound up or shall fail to maintain its corporate
existence in good standing (excepting, however, reorganizations, consolidations
and/or mergers into or with affiliates owned by, owning or under common control
of or with such entity or into the parent of such entity, provided the
succeeding organization assumes and accepts such entity’s obligations
hereunder); or

 

(g)                                 If a garnishment
summons or writ of attachment is issued against or served upon the Lender for
the attachment of any property of the Borrower in the Lender’s possession or
any indebtedness owing to the Borrower, unless appropriate papers are filed by
Borrower contesting the same within 30 days after the date of such service or
such shorter period of time as may be reasonable in the circumstances; or

 

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(h)                                 Any judgment or court
order (whether or not final) shall be filed or entered against Borrower, which
if adversely determined, could substantially impair the ability of Borrower to
perform each and every one of its obligations under and by virtue of the Loan
Documents applicable to the Borrower; or

 

(i)                                     Upon the
occurrence of a Material Adverse Effect; or

 

(j)                                     The Pledgor shall
be in default of any term or provision of the LLC Unit Pledge Agreement, and
such default shall not be cured within ten (10) days after written notice from
the Lender to the Pledgor; or

 

Upon the occurrence of an Event of Default, the Lender shall be under
no further obligation to make advances hereunder, and the Lender may from time
to time do any of the following, without any duty to pursue or exercise any
rights and remedies under the LLC Unit Pledge Agreement:

 

(a)                                  Declare the
outstanding principal balance of the Promissory Note and accrued and unpaid
interest thereon to be immediately due and payable, and the same shall
thereupon be immediately due and payable, in each case without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived.

 

(b)                                 Charge interest on any
amounts outstanding as of the date of the Event of Default at a rate equal to
the “Default Interest Rate” defined on Schedule 1 to this Agreement, from
the date of such Event of Default until all such amounts have been paid in
full.

 

(c)                                  Exercise and enforce
any and all rights and remedies available under this Agreement or the other
Loan Documents, at law, in equity or otherwise.

 

7.                                       INDEMNIFICATION.  The Borrower agrees to reimburse, indemnify
and hold harmless the Lender, its officers, agents and employees (each, and “Indemnitee”),
against any and all losses, claims, damages, liabilities, cost and expenses
(including amounts paid in settlement, court costs, and reasonable attorneys’
fee and costs of investigation and defense) which may at any time be asserted
against or incurred by any such Indemnitee as a result of, or arising out of,
or in any way related to, this Agreement or any of the other Loan Documents,
any transaction contemplated hereby or thereby, or any transaction financed,
directly or indirectly, with the proceeds of any Loan.  The provisions of this Section 7 shall
survive the payment of the Promissory Note and the Loan.

 

8.                                       FEES/TAXES/ATTORNEYS
FEES.  The Borrower shall
reimburse the Lender, upon demand, for all costs and expenses, including
without limitation reasonable attorney’s fees, paid or incurred by the Lender
arising from or in connection with (a) the preparation, negotiation and
execution of the Loan Documents, (b) any amendments, modifications, waivers or
consents requested by the Borrower (whether or not ultimately granted or
entered into) to this Agreement or any of the other Loan Documents and (c) the
preservation and enforcement by the Lender of the rights or remedies of the
Lender hereunder or under any of the other Loan Documents, including

 

10

 

without limitation costs and expenses relating to (i) the protection of
the Lender’s security interest in the Collateral, (ii) the protection,
collection, sale, taking possession of or realization on, any Collateral, (iii)
the collection or enforcement of any outstanding Loan and (iv) any litigation,
proceeding, dispute, work-out, restructuring or rescheduling related in any way
to this Agreement or the other Loan Documents.

 

The Borrower agrees to pay all stamp, document, transfer, recording or
filing taxes or fees and similar impositions now or hereafter reasonably
determined by the Lender to be payable in connection with the Loan Documents
applicable to the Borrower, or any other documents, instruments or transactions
pursuant to or in connection herewith or therewith, and the Borrower agrees to
save the Lender harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions.  All such expenses, taxes or attorney’s fees
shall be payable to the Lender on demand. 
The obligations of Borrower under this Section 8 shall survive the
repayment of the Promissory Note and Loan.

 

9.                                       ENTIRE
AGREEMENT.  This Agreement and
the other Loan Documents applicable to the Borrower embody the entire agreement
and understanding between the Borrower and the Lender with respect to the
subject matter hereof and thereof.  This
Agreement supersedes all prior agreements and understandings relating to the
subject matter hereof.

 

10.                                 MARSHALING;
PAYMENTS SET ASIDE.  The Lender
shall be under no obligation to marshal any assets in favor of the Borrower or
any other person or against or in payment of the Loan and other indebtedness of
the Borrower to the Lender.  To the
extent that the Borrower makes a payment or payments to the Lender or the
Lender exercises its right of setoff, and such payment or payments or the
proceeds of such setoff or any part thereof are subsequently invalidated,
declared to fraudulent or preferential, set aside and/or required to be repaid
to a trustee, receiver or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.

 

11.                                 ADDRESSES
FOR NOTICES.  All notices to be
given by any party to the others hereunder shall be in writing and deemed to
have been given:  (i) on the day of
delivery if hand delivered; (ii) on the day of delivery if sent via overnight
courier; (iii) three days after the postmarked date if mailed postage prepaid,
certified or registered; or (iv) on the date of transmission if such
communication is delivered via facsimile (provided the sender receives a
machine-generated confirmation of successful transmission) addressed to the
address of such party as follows:

 

	
  IF TO THE LENDER:

  	
  Dakota Growers Pasta Company, Inc.

  
	
   

  	
  One Pasta Avenue

  
	
   

  	
  Carrington, ND 58421-2500

  
	
   

  	
  Attention: Chief Executive Officer

  
	
   

  	
  Facsimile: (701) 652- 3552

  

 

11

 

	
   

  	
  With a copy to:

  	
   

  
	
   

  	
  Lindquist & Vennum P.L.L.P.

  
	
   

  	
  80 South 8th Street, Suite 4200

  
	
   

  	
  Minneapolis, MN 55402

  
	
   

  	
  Attention: Ronald D. McFall, Esq.

  
	
   

  	
  Facsimile: (612) 672-3777

  
	
   

  	
   

  
	
  IF TO THE BORROWER:

  	
  DNA Dreamfields Company, LLC

  
	
   

  	
  14 West Park Place

  
	
   

  	
  Oxford, OH 45056

  
	
   

  	
  Attention: Mike Crowley

  

 

12.                                 AMENDMENTS.  This Agreement and the Loan Documents
applicable to the Borrower may not be amended or modified, nor may any of their
terms (including, without limitation, terms affecting the maturity of or rate
of interest on the Promissory Note) be modified or waived, except by written
instruments signed by the Lender and the Borrower.

 

13.                                 TIME
OF ESSENCE.  Time is of the
essence in the performance of this Agreement.

 

14.                                 BINDING
EFFECT AND ASSIGNMENT/THIRD PARTY BENEFICIARY.  This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective
successors and permitted assigns, except that Borrower may not transfer or
assign its rights or delegate its obligations hereunder without the prior
written consent of the Lender.  The
Borrower hereby acknowledges and agrees that the Lender may transfer or assign
this Loan Agreement and the Promissory Note and the assignee shall have, and is
hereby granted, all of the same rights and benefits as granted to Lender
hereunder and under the Promissory Note and all other Loan Documents applicable
to the Borrower.  If the Lender makes any
assignment to an assignee, then upon notice to the Borrower such assignee, to
the extent of such assignment, shall become a “Lender” hereunder and the Lender
shall be released from its duties and obligations under this Agreement to the
extent of such assignment.

 

15.                                 WAIVERS.  No waiver by the Lender of any right, remedy
or Event of Default hereunder shall operate as a waiver of any other right,
remedy, or Event of Default or of the same right, remedy or Event of Default on
any other occasion.  No delay on the part
of the Lender in exercising any right or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right or remedy
preclude, other or future exercise thereof or the exercise of any other right
or remedy.

 

16.                                 REMEDIES
CUMULATIVE.  The rights and
remedies herein specified of the parties hereto are cumulative and not
exclusive of any rights or remedies that the parties hereto would otherwise
have at law or in equity or by statute.

 

17.                                 GOVERNING
LAW.  This Agreement shall be
construed in accordance with the laws of the State of North Dakota, without
regard to the principles of conflicts of law thereby.

 

12

 

18.                                 COUNTERPARTS.  This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original, but such counterparts shall together constitute one and the same
instrument.

 

19.                                 RELATIONSHIP
OF PARTIES.  The Lender shall
not, by reason of any provision of any of the Loan Documents, be deemed to be,
a joint venturer with or partner or agent of the Borrower and the execution of
the Loan Documents shall not be deemed to amend or modify the provisions of the
Borrower’s Amended and Restated Operating Agreement.

 

20.                                 FURTHER
ASSURANCES.  Borrower will
promptly cure any defects in the creation, execution and delivery of this
Agreement.  Borrower, at its expense,
will promptly execute and deliver to Lender upon request all such other and
further documents, agreements and instruments in compliance with or accomplish
of the covenants and agreements of Borrower in this Agreement or in any related
document or to make any records, to file any notices, or obtain any consents,
all as may be necessary or appropriate in connection therewith.

 

21.                                 NOTICE
OF CHANGE IN LOCATION.  Borrower
shall promptly notify Lender of any change in location of Borrower’s principal
places of business or the offices where it keeps its records concerning
accounts and contract rights.

 

22.                                 SURVIVAL
OF AGREEMENTS.  All representations
and warranties of Borrower herein, and all covenants and agreements shall
survive the execution of this Agreement and the funding of the Loan, but shall
terminate upon full repayment of all Obligations to Lender, provided, however,
that the obligations of the Borrower under Section 7 and Section 8
shall survive payment in full of the Loan.

 

23.                                 RENEWAL
OR EXTENSION.  All provisions of
this Agreement relating to the Promissory Note and the related documents shall
apply with equal force and effect to each and all promissory notes or related
documents hereinafter executed which in whole or in part represent a renewal,
extension for any period, increase or rearrangement of any part of the
Promissory Note or such related documents.

 

24.                                 COMPLIANCE
CERTIFICATE.  With each request
for an advance, the Borrower agrees to provide to Lender a certificate of the
President of the Borrower, dated as of the advance date, in substantially the
form hereto as Exhibit C stating: 
(i) no Event of Default has occurred and is continuing on such advance
date or after giving effect to the advance requested to be made on such date
under any of the Loan Documents applicable to the Borrower or any event which
with the giving of the notice or the passage of time would constitute an Event
of Default under any the Loan Documents applicable to the Borrower, other than
Events of Default previously reported and remedied and, if so, stating in
reasonable detail the facts with respect to such Event of Default; (ii) that
the Borrower is in compliance with each of the covenants set forth in Sections
4 and 5 of this Agreement; and (iii) that the representations and warranties of
Borrower contained in this

 

13

 

Agreement and in the other Loan Documents are true and correct in all
material respects on and as of any advance date, both before and after giving
effect to the advance requested to be made on such date.

 

[Remainder of Page Intentionally Blank]

 

14

 

IN WITNESS WHEREOF, this Loan Agreement has been duly executed and
delivered by the proper officers thereunto duly authorized on the day and year
first above written.

 

 

	
  DNA DREAMFIELDS COMPANY,

  LLC

  	
  DAKOTA GROWERS PASTA

  COMPANY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Mike Crowley

  	
   

  	
  By:

  	
  /s/ Timothy J. Dodd

  	
   

  
	
  Its:

  	
  President

  	
   

  	
  Its:

  	
  President, Chief Executive Officer

  	
   

  

 

15

 

SCHEDULE 1

 

CALCULATION
OF INTEREST RATE

 

Interest shall begin to accrue on the date
any amounts are advanced to the Borrower by the Lender pursuant to this Loan
Agreement and, unless another rate of interest is becomes applicable pursuant
to this Schedule 1, shall accrue at an annual rate equal to the thirty
(30) day LIBOR rate as of the date of this Loan Agreement plus 8.0
percent per annum.

 

After each calendar quarter during the term
of this Loan Agreement and based on the financial results achieved by the
Borrower during the then-most recently ended calendar quarter (the “Measuring
Quarter”), the Lender and the Borrower shall adjust the interest rate
applicable to amounts outstanding during the calendar quarter following the
Measuring Quarter as follows:

 

A.                                   If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” (as defined below) shall
exceed $2.0 million, the interest rate applicable during the following quarter
shall be the then-current LIBOR thirty (30) day rate as adjusted from time to
time during the applicable quarter (the “then-current LIBOR rate”) plus 7.5%
percent per annum.

 

B.                                     If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” shall exceed $2.4 million,
the interest rate applicable during the following quarter shall be the
then-current LIBOR rate plus 7.0% percent per annum.

 

C.                                     If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” shall exceed $2.8 million,
the interest rate applicable during the following quarter shall be the
then-current LIBOR rate plus 6.5% percent per annum.

 

D.                                    If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” shall exceed $3.2 million,
the interest rate applicable during the following quarter shall be the
then-current LIBOR rate plus 6.0% percent per annum.

 

E.                                      If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” shall exceed $3.6 million,
the interest rate applicable during the following quarter shall be the
then-current LIBOR rate plus 5.5% percent per annum.

 

F.                                      If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” shall exceed $4.0 million,
the interest rate applicable during the following quarter shall be the
then-current LIBOR rate plus 5.0% percent per annum.

 

For purposes of this Agreement, “Adjusted
Income” shall mean the Borrower’s income during the twelve (12) calendar months
preceding the end of the applicable Measuring Quarter, determined without
regard to the interest paid or accrued by the Borrower during such twelve (12)
month period and the advertising costs paid or accrued by the Borrower during
such period.

 

For purposes of this Agreement, the phrase “Default
Interest Rate” shall mean an annual rate of interest equal to (a) interest
determined in accordance with the other provisions of this Schedule 1 plus
(b) two percent (2%) per annum.

 

 

EXHIBIT A

 

FORM OF PROMISSORY NOTE

 

(See Exhibit 10.4 to Form 8-K dated June 27,
2005)

 

 

EXHIBIT B

 

FORM OF LLC UNIT PLEDGE AGREEMENT

 

(See Exhibit 10.5 to Form 8-K dated June 27,
2005)

 

16

 

EXHIBIT C

 

FORM OF COMPLIANCE CERTIFICATE

 

DATED            ,
200   

 

I, the President of DNA Dreamfields Company, LLC (“the Borrower”), do
hereby provide this Compliance Certificate in connection with that certain 2005
Line of Credit Loan Agreement dated May 31, 2005 (“the Loan Agreement”) by and
between the Borrower and Dakota Growers Pasta Company, Inc.

 

I certify that as of the date hereof:

 

(1)                                  Each
of the representations and warranties contained in Paragraph 3 of the Loan
Agreement are true and correct as of the date hereof.

 

(2)                                  The
Borrower is in compliance with each of the covenants contained in Paragraphs 4
and 5 of the Loan Agreement.

 

(3)                                  No
Event of Default has occurred and is continuing under any of the Loan
Documents, or would constitute an Event of Default under the Loan Agreement, or
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both.

 

	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Its: PresidentExhibit 10.4

 

	
  $5,000,000.00

  	
   

  	
  Dated: Effective May 31, 2005

  

 

Carrington, ND

 

PROMISSORY NOTE

 

FOR VALUE RECEIVED, the undersigned, DNA Dreamfields Company, LLC, an
Ohio limited liability company (hereinafter “Borrower”), hereby agrees and
promises to pay to the order of Dakota Growers Pasta Company, Inc., a North
Dakota corporation or its assigns (“Lender”) at One Pasta Avenue, Carrington,
North Dakota  58421-2500, or at such
other place as Lender, or assigns, may from time to time designate, the
principal sum of FIVE MILLION and 00/100ths Dollars ($5,000,000.00), or such
lesser sum as shall have been advanced by Lender to Borrower pursuant to the
terms of the 2005 Line of Credit Loan Agreement, dated of even date herewith,
by and between Borrower and Lender (the “Loan Agreement”), together with
interest on any and all amounts remaining unpaid thereon from time to time from
the date of disbursement (computed on the basis of actual days elapsed in a
year of 360 days) at a per annum interest rate determined in accordance with Schedule 1
hereto.

 

This Note shall be payable in a monthly installment of interest only on
the thirtieth day of the month following the month hereof and continuing on the
30th day of each succeeding month until the Note is paid in full.  The unpaid principal balance, together with
all accrued and unpaid interest, if not sooner paid, shall be due and payable
in full on May 31, 2010.  In addition to
the interest, payment of the principal amounts outstanding from time to time
shall commence upon the earlier to occur of a) ten (10) months after the date
of the first advance from the Lender to the Borrower pursuant to this
Promissory Note and the associated Loan Agreement and b) the principal amount
outstanding under this Promissory Note and the associated Loan Agreement equals
the maximum loan amount of Five Million Dollars ($5,000,000).  The date of the earlier event to occur of a)
or b) above shall be referred to as the “Principal Reduction Date”.  Commencing thirty (30) days after the end of
the calendar month in which the Principal Reduction Date occurred and
continuing each month thereafter while any principal amounts remain outstanding
hereunder, the Borrower shall pay to the Lender an amount equal to the Net
Income of Borrower as determined pursuant to generally accepted accounting
principles with respect to a particular calendar month, less any cash or other
reserve established by the Borrower pursuant to the decision of the “Managing
Member” (as defined in the Borrower’s Amended and

 

1

 

Restated Operating Agreement).  The Borrower reserves the right to
prepay this Note in whole or in part without premium or penalty.

 

The full and timely payment of this Note, together with Borrower’s
obligations under the Loan Agreement, shall be secured by a LLC Unit Pledge
Agreement of this date.

 

This Note is subject to the terms and conditions of the Loan Agreement,
which are incorporated herein by reference and made a part hereof.

 

Any event of default under the Loan Agreement shall constitute an “Event
of Default” hereunder.

 

The Borrower acknowledges that payments on the various scheduled due
dates are of essence and that any failure to timely pay the principal or
interest (within any permitted grace period) permits Lender to declare this
Note immediately due and payable in cash in its entirety without any prior
notice of any kind to Borrower (subject, however, to i) delivery of such
specific notices as are provided for in the Loan Agreement and ii) Borrower’s
right to prevent an Event of Default by taking action during the periods
specified in the Loan Agreement).

 

If this Note is not paid when due, Borrower shall pay Lender all
expenses and costs of collection, or any other action taken as a result thereof,
including, but not limited to, reasonable attorney’s fees and costs, whether or
not suit or other formal action has been commenced.

 

Borrower waives presentment for payment, protest and notice of non-payment
and dishonor or any other notice otherwise provided by law.  Any provision of this Note may be amended,
modified or waived upon the written consent of the Borrower and Lender.  The Borrower shall pay principal and interest
under the Note without any deduction for any set-off or counterclaim.

 

The rights and remedies of Lender under this Note shall be cumulative
and not alternative.  No delay or
omission on the part of Lender in exercising any right hereunder shall operate
as a waiver of such right or any other remedy under this Note.  A waiver of any one occasion or occasions
shall not be construed as a bar to or waiver of any such right or remedy on a
future occasion.

 

The validity, construction and enforceability of the Note shall be
governed by the internal laws of the State of North Dakota, without giving
effect to conflict of law principles thereof.

 

2

 

IN WITNESS WHEREOF, the undersigned has executed this Note as of the
day and year first above written.

 

	
   

  	
  DNA Dreamfields Company, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Mike Crowley

  	
   

  
	
   

  	
  Its

  	
  President

  	
   

  

 

 

	
  STATE OF OHIO

  	
  )

  
	
   

  	
  ) ss:

  
	
  COUNTY OF BUTLER

  	
  )

  

 

The foregoing instrument was acknowledged before me this 23rd day
of June, 2005, by Mike Crowley, the President of DNA Dreamfields
Company, LLC, an Ohio limited liability company, by and on behalf of the
limited liability company.

 

	
   

  	
  /s/ Judy K. Payne

  	
   

  
	
   

  
	
   

  	
  Notary Public

  
	
   

  
	
   

  	
  My Commission Expires 9/9/2006

  
				

 

3

 

SCHEDULE 1

 

CALCULATION
OF INTEREST RATE

 

Interest shall
begin to accrue on the date any amounts are advanced to the Borrower by the
Lender under this Promissory Note and, unless another rate of interest becomes
applicable pursuant to this Schedule 1, shall accrue at an annual rate
equal to the thirty (30) day LIBOR rate as of the date of this Promissory Note plus
8.0 percent per annum.

 

After each
calendar quarter during the term of this Promissory Note and based on the
financial results achieved by the Borrower during the then-most recently ended
calendar quarter (the “Measuring Quarter”), the Lender and the Borrower shall
adjust the interest rate applicable to amounts outstanding during the calendar
quarter following the Measuring Quarter as follows:

 

A.                                   If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” (as defined below) shall
exceed $2.0 million, the interest rate applicable during the following quarter
shall be the then-current LIBOR thirty (30) day rate as adjusted from time to
time during the applicable quarter (the “then-current LIBOR rate”) plus 7.5%
percent per annum.

 

B.                                     If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” shall exceed $2.4 million,
the interest rate applicable during the following quarter shall be the
then-current LIBOR rate plus 7.0% percent per annum.

 

C.                                     If, during the Measuring
Quarter, the Borrower’s “Adjusted Income” shall exceed $2.8 million, the
interest rate applicable during the following quarter shall be the then-current
LIBOR rate plus 6.5% percent per annum.

 

D.                                    If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” shall exceed $3.2 million,
the interest rate applicable during the following quarter shall be the
then-current LIBOR rate plus 6.0% percent per annum.

 

E.                                      If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” shall exceed $3.6 million,
the interest rate applicable during the following quarter shall be the
then-current LIBOR rate plus 5.5% percent per annum.

 

F.                                      If, during the
Measuring Quarter, the Borrower’s “Adjusted Income” shall exceed $4.0 million,
the interest rate applicable during the following quarter shall be the
then-current LIBOR rate plus 5.0% percent per annum.

 

For purposes
of this Promissory Note, “Adjusted Income” shall mean the Borrower’s income
during the twelve (12) calendar months preceding the end of the applicable
Measuring Quarter,

 

4

 

determined
without regard to the interest paid or accrued by the Borrower during such
twelve (12) month period and the advertising costs paid or accrued by the
Borrower during such period.

 

From and after
the date of any Event of Default (as defined in this Promissory Note) interest
on any amounts outstanding as of the date of the Event of Default shall accrue
at the “Default Interest Rate”, from the date of such Event of Default until
all such amounts have been paid in full. 
For purposes of this Promissory Note, the phrase “Default Interest Rate”
shall mean an annual rate of interest equal to (a) interest determined in
accordance with the other provisions of this Schedule 1 plus (b)
two percent (2%) per annum.

 

5

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