DAKOTA GROWERS PASTA CO, S-1/A, 1998-10-21

DAKOTA GROWERS PASTA CO
S-1/A, 1998-10-21
MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1998

REGISTRATION NO. 333-65071

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

PRE-EFFECTIVE AMENDMENT NO. 1
TO

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933
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DAKOTA GROWERS PASTA COMPANY

(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
NORTH DAKOTA 2099 45-0423511
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>

ONE PASTA AVENUE, P.O. BOX 21, CARRINGTON, NORTH DAKOTA 58421-0021
(701) 652-2855

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

MR. TIMOTHY J. DODD
PRESIDENT AND GENERAL MANAGER
DAKOTA GROWERS PASTA COMPANY
ONE PASTA AVENUE, P.O. BOX 21
CARRINGTON, NORTH DAKOTA 58421-0021
(701) 652-2855

(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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COPIES TO:
RONALD D. MCFALL, ESQ.
Doherty, Rumble & Butler P.A.
2800 Minnesota World Trade Center
30 East Seventh Street
Saint Paul, Minnesota 55101
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Membership Stock............................ 500 $125.00 $62,500.00 $18.44
Equity Stock................................ 3,679,000 $12.00 $44,148,000.00 $13,023.66
Total....................................... $44,210,500.00 $13,042.10
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

SUBJECT TO COMPLETION, DATED OCTOBER 21, 1998

DAKOTA GROWERS PASTA COMPANY
UP TO 500 SHARES OF MEMBERSHIP STOCK
UP TO 3,679,000 SHARES OF EQUITY STOCK

The shares of Membership Stock and the shares of Equity Stock (the "Shares")
offered hereby are available for purchase only by members of the Company and
qualified wheat growers who wish to become members of the Company. Each share of
Equity Stock represents the right and obligation to deliver one bushel of durum
wheat to the Company. Each member has one vote regardless of the number of
shares of Equity Stock held. No public trading market exists for the Membership
Stock and Equity Stock, which are transferrable only with the consent of the
Company's Board of Directors.

The Shares are being offered at $7.50 per Share on a priority basis to
current members. Each member of the Company of record as of December 1, 1998
will have the right to purchase one share of Equity Stock for each two shares of
Equity Stock owned as of that date. (The availability of Shares to current
members pursuant to that right is referred to as "Pool 1".) Each member, at the
time he or she subscribes for Shares in Pool 1, may also subscribe for an
unlimited number of additional Shares by completing the appropriate subscription
materials and paying the subscription price for the additional Shares. To the
extent that all shares of Equity Stock offered are not sold in Pool 1, the
remaining Shares will be classified as part of "Pool 2". Each member who has
requested shares of Equity Stock in addition to those subscribed for in Pool 1
will be entitled to acquire Shares in Pool 2, if Shares become part of Pool 2.
To the extent that Pool 2 does not contain an adequate number of shares of
Equity Stock to satisfy all subscriptions, the available Shares will be
allocated pro rata, based on the aggregate number of Shares available and the
number of Shares requested by each member. Subscription materials with respect
to Shares in Pool 1 and Pool 2 must be postmarked no later than January 6, 1998.
If all shares of Equity Stock are not purchased in Pool 1 and Pool 2, the
remaining Shares will be classified as "Pool 3" Shares. Those Shares will be
offered to other wheat growers who desire to become members of the Company but
at a price of $ per share of Equity Stock. Subscription materials with
respect to the purchase of Shares in Pool 3, including payment of the
subscription price, must be postmarked no later than February 28, 1999. The
Company does not have a commitment from any third party to purchase all or any
portion of the Membership Stock or Equity Stock offered hereby.

THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. PLEASE REFER TO "RISK
FACTORS," BEGINNING ON PAGE 7 OF THIS PROSPECTUS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<CAPTION>
PRICE TO
CURRENT
MEMBERS/NEW UNDERWRITING PROCEEDS TO
MEMBERS DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Equity Stock (Maximum of 3,679,000 Shares)...................... $7.50/$ $0 $27,592,500(4)
Membership Stock(3) (Up to 500 shares).......................... $125.00 $0 $62,500(5)
</TABLE>

(1) The Company will offer and sell the Shares itself. Certain of the Company's
officers will be responsible for completing offers and sales of the Shares.
Such persons will not receive any special compensation for their selling
efforts.

(2) Before deducting offering expenses payable by the Company, estimated at
$150,000.

(3) Each prospective purchaser wishing to become a member of the Company must
acquire one (1) share of Membership Stock, which share is required for
membership in the Company, and such number of shares of Equity Stock as may
be desired. If the prospective purchaser is already a member of the Company,
he or she will already own a share of Membership Stock and will not be
required to acquire an additional share of Membership Stock. See
"Description of Capital Stock."

(4) Assumes all shares of Equity Stock are sold to current members.

(5) If all shares of Equity Stock are sold to current members, the Company will
not accept any subscriptions from persons who are not current members of the
Company and will not sell any shares of Membership Stock in this offering.

THE DATE OF THIS PROSPECTUS IS OCTOBER 21, 1998

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ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission (the "SEC" or "Commission") under the
Securities Act with respect to the Shares offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement. For further
information with respect to the Company and the offering, reference is made to
such Registration Statement and the schedules and exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or any other
document are not necessarily complete. With respect to each such contract or
other document filed as part of or otherwise incorporated in the Registration
Statement, reference is made to the exhibit for a more complete description of
the matters involved, and each such statement shall be deemed qualified in its
entirety by such reference.

The Company is subject to the informational requirements of Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
The reports and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 7 World Trade Center, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60611.
Copies of such materials also can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a World Wide Web site that contains reports and
other information regarding registrants, including the Company, that file
electronically with the SEC. The address of such site is http:\\www.sec.gov.

The Company furnishes its members with annual reports containing audited
financial statements.

FORWARD LOOKING STATEMENTS

This Prospectus contains forward-looking statements and information based
upon assumptions by the Company's management, as of the date of this Prospectus,
including assumptions about risks and uncertainties faced by the Company. These
forward-looking statements can be identified by the use of forward-looking
terminology such as "expects", "anticipates", "believes", "will" or similar
verbs or expressions. If any of management's assumptions prove incorrect or
should unanticipated circumstances arise, the Company's actual results could
materially differ from those anticipated by such forward-looking statements. The
differences could be caused by a number of factors or combination of factors
including, but not limited to, those factors identified in "Risk Factors"
beginning on page 7. Readers are strongly encouraged to consider those factors
when evaluating any such forward-looking statement. The Company undertakes no
obligation to update any forward-looking statements in this Prospectus to
reflect future events or developments.

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The Company has registered trademarks for Pasta Growers-Registered
Trademark- and Pasta Sanita-Registered Trademark-. The Company also has a
pending trademark application with the U.S. Patent and Trademark Office for Zia
Briosa-TM-

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SUMMARY

THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS. IT IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS.

DAKOTA GROWERS PASTA COMPANY

Dakota Growers Pasta Company ("Dakota Growers" or the "Company") is a North
Dakota agricultural cooperative founded in 1992 to mill durum wheat delivered by
its approximately 1,100 members into high quality semolina, which the Company
then processes into premium pasta products. The Company owns and operates a
state-of-the-art milling and production facility in Carrington, North Dakota and
has two production facilities and a distribution center in the Minneapolis,
Minnesota metropolitan area. The Company produces over 1,500 different
stock-keeping units ("SKUs") for its customers, as well as the Company's own
pasta brands (Pasta Growers, Zia Briosa and Pasta Sanita).

The Company's production volume has experienced average annual growth of 38%
since the Company began operations, making it one of the three largest pasta
producers in the United States. In fiscal 1998, pasta sales totaled over 254
million pounds, of which approximately 55% was sold to retail customers, 25% to
food service distributors and 20% to food manufacturers as ingredients in
finished food products. According to the U.S. Department of Commerce, American
consumers have increased their average consumption of pasta during the past ten
years, at an annualized growth rate of approximately 2% to 3%. However, based on
the Company's analysis of the marketplace and information distributed by
industry and trade sources, the Company believes that the rate of growth in
pasta consumption in 1998 may approximate 1% to 2%.

Although the Company has been successful in increasing production and in
operating on a profitable basis, the Company participates in a very competitive
industry. The pasta industry is currently characterized by intense price
competition, arising from the current low cost of durum wheat and production
overcapacity. The basic raw material for pasta production is durum wheat; the
price for durum wheat has fallen to very low levels in comparison to recent
years, significantly decreasing the cost of pasta production in comparison to
previous years. In addition, a number of pasta producers have completed or
disclosed plans to build new production facilities or increase the capacity of
their existing facilities. As a result, the Company believes that competition,
focused on product pricing, will increase in the foreseeable future.

The Company believes that it possesses:

- A STABLE SUPPLY BASE. Given the nature of the Company's operating
structure in which its shareholders provide Dakota Growers' main raw
material, the Company has a strong, stable supply base. Durum wheat
growers have essentially a two-fold incentive for supplying wheat to the
Company. First, as durum wheat is used almost exclusively for pasta
production, the growers are assured a buyer (the Company) for their
product. Second, the growers enjoy the incremental profit from the
Company's conversion of wheat into finished pasta. For each of the last 3
fiscal years the Company has returned approximately 70% of net earnings to
members in the form of patronage dividends. Historically, the Company's
Board of Directors at its October meeting has determined what portion of
the Company's net earnings for the previous fiscal year will be
distributed as a patronage dividend.

- A DIVERSIFIED CUSTOMER BASE. The Company markets pasta to a well
diversified base of over 80 customers who are spread among various selling
segments, including RETAIL (supermarkets, warehouse clubs, discount
stores, drug stores and other retail outlets), INGREDIENT (pasta used by
food processors) and FOODSERVICE (restaurants, hotels, universities,
elementary and secondary schools). These customers include well-recognized
names such as Alliant Foodservice, ConAgra, Costco, General Mills, Kroger,
Luigino's, Safeway, U.S. Foodservice (formerly JP Foodservices) and

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Western Family Foods. None of the Company's customers account for 10% or
more of the Company's total revenues

- A LEADING POSITION IN PRIVATE-LABEL PASTA PRODUCTS. Contributing to the
Company's position as the third largest pasta producer in the U.S. is its
leading market share in retail private label pasta, which management
estimates at 37%. Customers include major food chains across the U.S.
Management believes the retail private label market is attractive, given
its growing market share. At calendar year end 1997, private labels' share
of the retail market increased to approximately 17%. The Company believes
this growth is due to favorable pricing and consumers recognition of the
comparable quality of today's private label pastas.

- STATE OF THE ART PROCESSING FACILITIES. The Company believes that its two
primary processing facilities, located in Carrington, North Dakota and New
Hope, Minnesota, are highly efficient, facilities for the production of a
wide variety of pasta shapes and products. When operated at full capacity,
those primary plants could produce a total of approximately 440 million
pounds of pasta per year. (The Company also operates a smaller facility
which provides an additional 30 million pounds of production capacity,
bringing the Company's total production capacity to 470 million pounds.)
The Company believes that the production capabilities and efficiencies of
its primary facilities allow the Company to compete effectively against
other pasta producers who have older, less efficient facilities.

THE OFFERING

The Company is offering up to 500 shares of its Membership Stock and up to
3,679,000 shares of its Equity Stock for sale to existing members of the Company
or other agricultural producers who qualify for membership in the Company. To
become a member of the Company, each agricultural producer must acquire a share
of the Company's Membership Stock. Each member of the Company is entitled to one
vote, based upon ownership of a share of Membership Stock. Each share of Equity
Stock entitles and obligates a member to deliver durum wheat to the Company each
year in an amount proportionate to the member's Equity Stock; that delivery
obligation arises pursuant to the terms and conditions of a "Growers Agreement"
which each member must enter into with the Company as part of his or her
purchase of Equity Stock in this offering. The Growers Agreement is described
later in this Prospectus and a copy is attached as an exhibit. Prospective
subscribers should review the Growers Agreement and carefully consider the terms
and conditions of that agreement.

The Shares are being offered at $7.50 per Share on a priority basis to
current members. Any Shares not purchased by current members will be available
for purchase by prospective members. Each member of the Company of record as of
December 1, 1998 will have the right to purchase one share of Equity Stock for
each two shares of Equity Stock owned as of that date. (The availability of
Shares to members pursuant to that right is referred to as "Pool 1".) Each
member, at the time he or she subscribes for Shares in Pool 1, may also
subscribe for an unlimited number of additional Shares by completing the
appropriate subscription materials and paying the subscription price for the
additional Shares. (Any subscription payments for Shares not issued to a
particular subscriber will be returned without interest or deduction.) To the
extent that all shares of Equity Stock offered are not sold in Pool 1, the
remaining Shares will be classified as part of "Pool 2". Each member who has
requested shares of Equity Stock in addition to those subscribed for in Pool 1
will be entitled to acquire Shares in Pool 2, if Shares become part of Pool 2.
To the extent that Pool 2 does not contain an adequate number of shares of
Equity Stock to satisfy all subscriptions, the available Shares will be
allocated pro rata, based on the aggregate number of Shares available and the
number of Shares requested by each member. Subscription materials with respect
to Shares in Pool 1 and Pool 2 must be postmarked no later than January 6, 1999.
If all shares of Equity Stock are not purchased in Pool 1 or Pool 2, the
remaining Shares will be classified as "Pool 3" Shares. Pool 3 Shares will be
available for purchase by agricultural producers who are not members of the
Company as of December 1, 1998, at a price of $ per Share. Subscription
materials with respect to the purchase of Shares in Pool 3,

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including payment of the subscription price, must be postmarked no later than
February 28, 1999. The minimum purchase for Pool 3 Shares is 1500 Shares.

USE OF PROCEEDS

The Company intends to use the offering proceeds to finance the expansion of
its milling capacity and for working capital, including enhancement of its
equity position.

MARKET FOR THE EQUITY STOCK

Since the transferability of the Shares is restricted to agricultural
producers with agricultural operations in North Dakota, Minnesota and Montana,
it is unlikely that an active and liquid trading market will develop. Investors
should have a long-term investment intent.

RISK FACTORS

A decision to purchase Shares subjects the purchaser to certain risks.
Accordingly, the purchase of Shares may not be appropriate for persons who
cannot afford to lose their entire investment. See "Risk Factors."

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SUMMARY FINANCIAL DATA
(IN THOUSAND, EXCEPT PER SHARE DATA AND RATIOS)

BALANCE SHEET DATA
Total Assets............................................ $ 45,215 $ 47,842 $ 49,894 $ 68,739 $ 124,537
Long-term Debt (excluding current maturities)(4)........ 28,477 24,822 18,860 27,131 66,056
Redeemable Preferred Stock.............................. 970 970 820 453 253
Members' Investment..................................... 12,107 13,497 24,866 29,956 36,875
Working Capital(4)...................................... 2,001 2,400 8,184 6,329 22,813

OPERATING DATA
Ratio of Long-Term Debt to Members' Investment.......... 2.15x 1.84x .76x .91x 1.79x
</TABLE>

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(1) The Company's operations commenced on January 1, 1994, and, thus, the
financial data for the fiscal year ended July 31, 1994 contains only seven
months of operations. Accordingly, the financial information for the year
ended July 31, 1994 may not be comparable with subsequent years.

(2) Adjusted for the impact of the 3-for-2 stock split effective August 1, 1997.

(3) Qualified patronage declarations have been made by the Board of Directors in
October of each year based on the patronage earnings and average shares for
the prior fiscal year ending July 31. Payments of patronage declarations
have been made in November of each year. 1998's declaration and payment have
not yet been determined.

Amounts reflected above include only qualified patronage declarations, and
exclude non-qualified allocations to each members' account. Such
non-qualified amounts are reserved in each members' account but are not
taxable until qualified.

(4) Reflects the issuance of $27 million of senior notes on August 11, 1998, and
the retirement of term loans and seasonal loans with the proceeds of such
issuance.

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RISK FACTORS

In addition to the other information in this Prospectus, prospective
investors should carefully consider the following factors in evaluating an
investment in the Shares offered hereby. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below.

BRIEF OPERATING HISTORY

The Company began full operations on January 1, 1994. Therefore, it has a
short operating history with respect to producing and marketing pasta.
Notwithstanding its current operations and historical financial results, there
can be no assurance that the Company will continue to operate profitably or be
effective in managing its future growth.

TAX TREATMENT

Subchapter T of the Internal Revenue Code sets forth rules for the tax
treatment of cooperatives and applies both to cooperatives exempt from tax under
Section 521 of the Internal Revenue Code and to nonexempt corporations operating
on a cooperative basis. Dakota Growers is a nonexempt cooperative. As a
cooperative, Dakota Growers is not taxed on amounts of patronage sourced income
withheld from its members in the form of qualified per-unit retains or on
amounts distributed to its members in the form of qualified written notices of
allocation. Consequently, such amounts are taxed directly to the members.
However, revenue attributable to non-patronage sourced income is taxed at the
Company level and again upon distribution to the Company's members. If the
Company were not entitled to be taxed under Subchapter T or if a significant
portion of revenues are from non-patronage sourced income, its revenues would be
taxed when earned by the Company and the members would be taxed when dividends
are distributed. From time to time, the Internal Revenue Service challenges the
tax status of cooperatives, taking the position that the challenged entities are
not operating on a cooperative basis and are therefore not entitled to the tax
treatment described above. Those challenges can be based on a variety of
factors, including the nature of the cooperative's business, its interaction
with its members and the portion of its business done for or with its members.
The impact of most such challenges, regardless of the factor on which the
challenge is based, is that the Internal Revenue Service seeks to assert that
some or all of a cooperative's income does not arise from a "patronage"
transaction. As any income derived from non-patronage sources is subject to
taxation at the entity level, the effect of a successful challenge is that the
cooperative would be taxed as a corporation. The Internal Revenue Service has
not challenged the Company's tax status; the Company would vigorously defend any
such challenge. However, taxation at both the Company level and the shareholder
level would have a material, adverse impact on the Company.

TECHNOLOGICAL OBSOLESCENCE

The Company believes that one of its current business advantages is that the
Company's primary processing facilities contain state of the art production
technology, benefitting the Company by providing comparatively lower costs than
production facilities based on older production technologies. To the extent that
over time other pasta producers adopt similar technology or adopt new production
technologies which provide even greater efficiencies, the Company's current
perceived advantage may be decreased or eliminated and the Company may find
itself at a technological disadvantage, with higher production costs than its
competitors.

INTENSE AND VOLATILE COMPETITION

The pasta industry is highly competitive. The Company is in direct
competition with other more established pasta manufacturers that have
substantially greater resources. The pasta industry is also

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characterized by excess production capacity, with a variety of pasta producers
having disclosed that they intend to further increase production capacity by
either constructing new production facilities or by expanding the production
capacity of existing facilities by adding additional processing lines. Part of
that increase in production capacity has arisen from foreign producers
establishing production facilities in the United States. This excess capacity
has given rise to intense competition for sales, often focused on product price.
A variety of discount programs are used by industry participants seeking to sell
pasta products. The effect of such competition on the Company has been to put
pressure on profit margins and to involve the Company in vigorous competition to
obtain and retain product customers. There can be no assurance that the Company
can continue to grow and operate profitably in such an environment. See
"Business-- Competition."

PASTA, SEMOLINA AND DURUM WHEAT PRICES

The profitability of the Company will be subject to changes in the market
prices for finished pasta products, and semolina and durum wheat, matters over
which the Company will have little or no control. The current prices for durum
wheat, the primary ingredient in pasta, are at very low levels in comparison to
recent years. The effect of those lower prices for durum wheat and the resulting
semolina, when combined with the excess production capacity situation, has
placed downward pressure on the prices for which pasta products can be sold and
has intensified the competition in the pasta industry. While the Company has
from time to time in the past sold semolina to other pasta producers, the
Company's current need for all the semolina which can be produced in the
Company's milling operations has temporarily curtailed sales of semolina to
other pasta producers. See "Business--Products and Production."

PRODUCT CONCENTRATION

The Company competes exclusively in the dry pasta segment of the overall
pasta market. As a result, any decline in the demand or pricing for dry pasta,
any shift in consumer preferences away from dry pasta or any other factor
adversely affecting the dry pasta market could have a more significant adverse
effect on the Company's business and financial position than on pasta producers
that also produce other products.

OBLIGATION TO DELIVER WHEAT; POSSIBLE REDUCTION OF DELIVERY OBLIGATION

All members of the Company are obligated to deliver durum wheat to the
Company in proportion to the amount of Equity Stock owned by that member. If a
member is unable to grow and deliver the durum wheat required to be delivered to
the Company pursuant to the Growers Agreement, the member must purchase the
required quantity of durum wheat from other agricultural producers or other
owners of durum wheat for delivery to the Company. As a result, a member not
able to produce durum wheat for delivery to the Company would be exposed to the
risk that the price of acquiring durum wheat for delivery to the Company would
be in excess of the price to be paid for durum wheat by the Company under the
Growers Agreement. See "Business--Growers Agreement; Durum Delivery System" and
"Description of Capital Stock."

Under the Growers Agreement, the Company may, depending on its marketing
needs, reduce on a pro rata basis the quantity of durum wheat each member is
obligated to deliver to the Company. For fiscal year 1998, the delivery
obligation has been one bushel of durum wheat per share of Equity Stock owned.
In fiscal years 1997 and 1996 the delivery obligation was slightly less than one
bushel of durum wheat per share. There can be no assurance that the Company will
not reduce the amount of durum wheat to be delivered by members. In the event
that the Company reduces the amount of durum wheat to be delivered per share of
Equity Stock, each member would experience a proportionate reduction in the
patronage activity with the Company. See "Business--Growers Agreements."

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GOVERNMENT REGULATION AND TRADE POLICIES

Dakota Growers is subject to extensive federal and state environmental laws
and regulations with respect to water and air quality, solid-waste disposal and
odor and noise control. The Company conducts an on-going program designed to
comply with these laws and regulations. There are no pending regulatory
enforcement actions against the Company, and the Company believes that it
currently is and will continue to be in substantial compliance with all
applicable environmental laws and regulations.

As a producer of products intended for human consumption, the Company's
operations are subject to certain federal and state regulations, including
regulations promulgated by the U.S. Food and Drug Administration. The Company
believes that it is in material compliance with all applicable regulatory
requirements relating to food quality and safety.

The operations of the Company may be affected by governmental trade policies
and regulations, including those impacting the amount of durum wheat imported
from Canada and the volume of pasta imports. Pricing policy actions by the
Canadian Wheat Board in recent years may have resulted in increased sales of
Canadian durum wheat in the U.S. and lower durum wheat prices. These actions
have resulted in complaints from durum growers in the U.S. (including many of
the Company's grower-owners), and a continuing dispute over possible
restrictions on durum wheat imports. If restrictions are implemented, it could
impact both the milling and pasta areas of the Company's business operations.

Domestic pasta prices are also influenced by competition from foreign pasta
producers, and as such by the trade policies of both the U.S. government and
foreign governments. In 1996, a U.S. Department of Commerce investigation
determined that several Italian and Turkish pasta producers were selling pasta
at less than fair value in U.S. markets, and were benefitting from subsidies
from their respective governments. Consequently, the U.S. International Trade
Commission imposed punitive anti-dumping duties on pasta imported from both
nations, effective July, 1996. However, foreign pasta producers have also
entered the United States pasta market by establishing production facilities in
the United States, further increasing competition in the United States pasta
market.

RESTRICTIVE LOAN COVENANTS

The Company's loan agreements with the St. Paul Bank for Cooperatives (the
"Bank") obligate the Company to maintain or achieve certain amounts of equity
and working capital and achieve certain financial ratios. In addition to the
covenants regarding financial ratios, the various agreements require the Company
to acquire the Bank's consent with respect to certain cash distributions,
including payment of cash patronage in an amount greater than 20% of qualified
patronage allocations. To the extent that the Company is not able in the future
to satisfy the various conditions specified in the loan agreements, the
Company's ability to distribute either patronage distributions or any other
dividends to its members may be restricted or the Company may be prohibited from
returning unit retains withheld from durum wheat purchases from members. The
failure to comply with the various loan covenants may result in interest rate
penalties, restrict the Company's corporate activities or result in a default by
the Company which may materially adversely affect the Company's liquidity. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources."

RESTRICTIONS ON TRANSFERABILITY OF SHARES; NO OBLIGATION TO REPURCHASE SHARES

The purchase of Equity Stock and Membership Stock should be considered a
long-term investment decision by each prospective purchaser. There is a very
limited private market for the Equity Stock and no market for the Membership
Stock. The Company has no current plans with respect to developing a general
public market for its securities. Shares of Equity Stock in the Company may be
transferred only with the consent of the Company's Board of Directors. Any
transferee of the Equity Stock must (i) satisfy the membership eligibility
requirements described in the Company's Bylaws, (ii) be approved for membership
by the Board of Directors, (iii) own one share of Membership Stock and (iv)
execute a Growers

9
<PAGE>
Agreement. The Company has no legal obligation to repurchase any Membership
Stock or Equity Stock at any time, even if the Company terminates a member's
membership. However, the Company has consistently repurchased shares of
Membership Stock from a member desiring to transfer all of the member's Equity
Stock to a qualified third party. As a result, persons who acquire Membership
Stock and Equity Stock may not be able to obtain liquidity with respect to their
purchase of such shares. See "Description of Capital Stock."

TERMINATION OF MEMBERSHIP INTEREST

Pursuant to the Company's governing documents, a stockholder's membership in
the Company automatically terminates upon ceasing to be a producer of
agricultural products or upon failing to patronize the Company for thirteen
consecutive calendar months. In addition, the Board of Directors may terminate a
membership for cause. "Cause" includes intentional or repeated breach of the
Bylaws, rules or regulations of the Company or failure to make timely payment of
debts to the Company, breach of any contract between the member and the Company,
and other causes determined by the Board of Directors in the exercise of honest
and good faith business judgment. Whether a membership is subject to termination
for breach of a contract may be determined by the Board of Directors without
regard to the commencement or outcome of any litigation arising from the
contract.

Upon termination of membership in the Company, a member will cease to have
voting rights and other rights of membership. However, loss of membership rights
will not relieve a member's obligation to deliver durum wheat to the Company
pursuant to the terms of the member's Growers Agreement or excuse a terminated
member from performing any other obligations under a contract between the
Company and the terminated member. The Growers Agreement will remain in effect
until the July 31 next following the termination of membership. The Company has
no obligation to repurchase the Membership Stock or Equity Stock of a member
determined to be ineligible as a member. See "Description of Capital Stock."

BOARD OF DIRECTORS DISCRETION REGARDING PATRONAGE DISTRIBUTIONS

The Company conducts its patronage business on a cooperative basis. The
quantity of durum wheat delivered to the Company by any member is used in
determining that particular member's patronage business with the Company and the
member's share of the Company's net proceeds. The Board of Directors of the
Company has absolute discretion to determine the manner and amount of payment of
patronage equity credits. See "Business--Growers Agreement; Durum Delivery
System" and "Description of Capital Stock."

UNIT RETAINS

As a means of raising capital, an agricultural cooperative may retain a
portion of the payments otherwise due members for their crops. This is called a
"unit retain" or "unit retention capital." A qualified unit retain is not
taxable income to the cooperative under federal law, but is available for the
general business purposes of the cooperative, including debt service. The
Company's Board of Directors may determine on an annual basis the amount of unit
retains to be applied to all members on a uniform basis. Unit retains may be
retained by the Company indefinitely. To date, Dakota Growers has not withheld a
unit retain but has paid the full price of durum wheat to the growers, less
applicable transaction fees established by the Board of Directors. Although the
Board does not envision using unit retains as a method to increase the Company's
capital, there can be no assurance that the Company's Board of Directors will
not exercise its authority to withhold unit retains under certain circumstances,
including but not limited to, maintaining sufficient capital to meet the capital
requirements imposed under any agreements with its lenders. See "Description of
Capital Stock."

10
<PAGE>
MEMBER'S CONSENT TO TAXATION FOR QUALIFIED ALLOCATIONS OF PER-UNIT RETAINS AND
PATRONAGE EARNINGS

Each member of the Company must agree that the amount of any qualified
per-unit retain allocations and patronage dividends with respect to patronage
which are made in money, qualified written notices of allocation (as defined in
26 U.S.C. Section 1388) or other property will be deemed to be taxable income to
the member in the taxable year in which such written notices of allocation are
received by the member. Therefore, qualified per-unit retains are taxable income
to the Company's members even though the member may not receive payment for such
qualified per-unit retains for several years.

To constitute a qualified written notice of allocation of patronage
dividends under federal tax law, the Company must pay to each member at least
20% of the patronage dividend in cash or by qualified check. Therefore, in the
event that the Company issues patronage dividends in the form of qualified
written notices of allocation the entire amount of such patronage dividend is
deemed to be taxable income to the member, even though the member may receive a
cash payment of only 20% of the patronage dividend.

USE OF PROCEEDS

Assuming no sales to nonmembers, the net proceeds to the Company from the
sale of the Shares offered hereby are estimated to be approximately $13,646,250
if 50% of the Shares are sold, $20,544,375 if 75% of the Shares are sold and
$27,442,500 if 100% of the Shares are sold, all calculated after deducting
estimated offering expenses of $150,000. The following table sets forth the
intended uses for the net proceeds assuming 50%, 75% and 100% of the Shares are
sold. There is no assurance that all Shares will be sold.

<TABLE>
<CAPTION>
CATEGORY 50% 75% 100%
- -------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Mill Expansion...................................................... $ 10,500,000 $ 10,500,000 $ 10,500,000
Working Capital, including equity enhancement....................... 3,146,250 10,044,375 16,942,500
------------- ------------- -------------
$ 13,646,250 $ 20,544,375 $ 27,442,500
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The foregoing use of the net proceeds of the offering is based upon the
Company's assumptions concerning its business objectives, finances and other
matters affecting the Company. If current assumptions are not accurate or other
unforeseen conditions affecting the Company's business arise, there could be
material changes to the Company's projections. If the Company were to receive
less than 50% of the maximum proceeds shown above from the offering described in
this Prospectus, the Company may be required to adopt various alternative
strategies in order to solidify the Company's financial position and to complete
the mill expansion. Those strategies could include deferral or reduction of
capital expenditures, the adoption of a program to retain a larger portion of
patronage distributions than has been the Company's historical practice, the
adoption of a longer term unit retain program or obtaining additional debt
financing, which could be expected to be difficult to obtain and could be
expected to carry higher costs than the Company's previous financing activities.
Proceeds from the sale of shares of Membership Stock, if any, will be added to
the Company's working capital.

Pending application of the proceeds of this offering, the Company intends to
invest the net proceeds in short-term, high quality interest-bearing
instruments.

PAYMENTS TO MEMBERS

Members are obligated to deliver durum wheat to Dakota Growers under the
Growers Agreement. Commencing August 1, 1998, all durum wheat deliveries by
members must be made through an agency arrangement administered by Northern
Grains Institute ("NGI"), a North Dakota non-profit company. NGI acts as each
member's grain handling delivery agent in connection with deliveries of durum to
Dakota

11
<PAGE>

Growers. See "Business--Growers Agreement; Durum Delivery System." Members
making actual delivery of durum to NGI receive the Dakota Growers' spot market
price within fourteen (14) days of delivery.

Durum wheat delivered to Dakota Growers by its members is processed and the
resulting semolina and pasta products are marketed on a cooperative basis. Each
member is paid for the durum wheat delivered to the Company. In addition, a
member may receive a portion of the net proceeds of the Company from its value
added processing operations, based on each member's patronage with the Company
as compared to total patronage of all members. The Company may withhold a
portion of the payments owed to members for their durum delivered to the Company
in the form of unit retains and may elect not to pay the entire amount of
patronage in cash.

A unit retain is a portion of the payment to the members for their durum
delivered to the Company, which portion is retained by the Company for use as
capital for the Company's business. Under IRS guidelines, the Company has the
option to treat the unit retains as taxable at the cooperative level or to treat
the unit retains as nontaxable by declaring the unit retains as "qualified."
Qualified unit retains are taxable to the member in the member's tax year of
notification. When a qualified per unit retain is reimbursed or "revolved" in
the form of a cash payment to the member, the member reports no additional
income, having already paid tax on the whole amount in the year of declaration.
Unit retains do not contain a minimum cash payment requirement to qualify for
this tax treatment.

The Board of Directors, in its absolute discretion, taking action pursuant
to reasonable policies of uniform application, is empowered to determine the
manner of distribution and payment of patronage which may be in cash, credits,
certificates of interest, revolving fund certificates, letters of advice,
promissory notes, or other certificates or securities of the Company or of other
associations or cooperatives, in other property, or in any combination thereof.
The Company may pay patronage dividends in the form of qualified written notices
of allocation of patronage earnings to the members, based on each member's
patronage business with the Company. If the Company pays patronage dividends in
the form of qualified written notices of allocation, the Company must pay at
least 20% of the allocation in cash in order for the patronage dividend to
constitute a qualified written notice of allocation under federal tax law. If
the written notice of allocation is "qualified", the entire amount of the
qualified patronage allocation is taxable income to the member in the year
declared, regardless of the amount distributed in cash.

The Company has no obligation, including upon its termination of a member,
to pay the members amounts retained as unit retains or patronage equity credits.
Moreover, various loan agreements between the Company and its lenders could
compel the Board to retain amounts as unit retains in order to satisfy capital
requirements under its loan agreements and could restrict the Board from paying
more than 20% of patronage as cash dividends. See "Description of Capital
Stock."

12
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
July 31, 1998; and (ii) on a pro forma basis after giving effect to the issuance
of $27 million of senior notes subsequent to July 31, 1998.

<TABLE>
<CAPTION>
JULY 31, 1998
----------------------
ACTUAL PRO FORMA
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
SHORT-TERM DEBT:
Notes Payable and Current Portion of Long Term-Debt..................... $ 4,033 $ 4,033
--------- -----------

LONG-TERM DEBT:
Long-Term Debt(1)....................................................... 66,056 39,056
Senior Secured Notes.................................................... 0 27,000
--------- -----------
TOTAL LONG-TERM DEBT................................................ 66,056 66,056
--------- -----------

PREFERRED STOCK
Redeemable preferred stock:
Series A, 6% cumulative, $100 par value, 1,000 shares issued and
outstanding......................................................... 100 100
Series B, 2% non-cumulative, $100 par value, 1,525 shares issued and
outstanding......................................................... 153 153
--------- -----------
TOTAL PREFERRED STOCK............................................... 253 253
--------- -----------

MEMBERS' EQUITY
Convertible preferred stock:
Series C, 6% non-cumulative, $100 par value, no shares issued and
outstanding(2)...................................................... -- --
Series D, 6% non-cumulative, $100 par value, 23,038 shares issued and
outstanding......................................................... 2,304 2,304
Membership stock, $125 par value, 1,101 issued and outstanding.......... 137 137
Equity stock, $2.50 par value, 7,356,059 shares issued and outstanding;
$3.85 par value, 4,904,034 shares issued and outstanding.............. 18,390 18,390
Additional paid in capital.............................................. 4,101 4,101
Accumulated allocated earnings.......................................... 2,914 2,914
Accumulated unallocated earnings........................................ 9,029 9,029
--------- -----------
TOTAL MEMBERS' INVESTMENT........................................... 36,875 36,875
--------- -----------
TOTAL CAPITALIZATION............................................ $ 107,217 $ 107,217
--------- -----------
--------- -----------
</TABLE>

- ------------------------

(1) See Note 6 to the Consolidated Financial Statements for information
regarding long-term debt obligations.

(2) Excludes 5,728 shares of Series C convertible preferred stock issuable upon
the exercise of outstanding stock options.

13
<PAGE>
SELECTED FINANCIAL DATA

The selected financial data presented below for the fiscal years ended July
31, 1994, 1995, 1996, 1997 and 1998 are derived from the financial statements of
the Company, which were audited by Eide Bailly LLP, independent accountants.
This section should be read in conjunction with the Company's financial
statements and related notes included elsewhere in this Prospectus.

FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31
------------------------------------------------------
1994(1) 1995 1996 1997 1998
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Revenue............................................. $ 20,008 $ 41,239 $ 50,494 $ 70,702 $ 119,621
Cost of Product Sold.................................... 17,954 35,789 43,318 58,357 100,229
--------- --------- --------- --------- ----------
Gross Proceeds.......................................... 2,054 5,450 7,176 12,345 19,392
Marketing, General and Administrative Expenses.......... 1,483 2,021 2,532 3,542 6,754
--------- --------- --------- --------- ----------
Operating Proceeds...................................... 571 3,429 4,644 8,803 12,638
Other Income (expense).................................. (780) (2,021) (2,022) (1,877) (3,264)
Provision for Income Taxes.............................. (2) (28) 4 0 0
--------- --------- --------- --------- ----------
Net Income (Deficit).................................... (207) 1,436 2,618 6,926 9,374
Dividends on Preferred Stock............................ 42 42 39 36 15
--------- --------- --------- --------- ----------
Earnings (loss) from Patronage and Non-Patronage
Business Available for Members........................ $ (249) $ 1,394 $ 2,579 $ 6,890 $ 9,359
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Average Equity Shares Outstanding(2).................... 4,674 4,674 5,568 7,356 7,356
Earnings (loss) from Patronage and Non-Patronage
Business per Average Equity Share Outstanding(2)...... $ (.05) $ .30 $ .46 $ .94 $ 1.27
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Patronage Dividends Per Share:(2)
Declared(3)........................................... -- $ .20 $ .32 $ .65
Distributed(3)........................................ -- .20 .32 .65
BALANCE SHEET DATA:
Cash.................................................... $ 1 $ 155 $ 1,448 $ 5 $ 182
Working Capital(4)...................................... 2,001 2,400 8,184 6,329 22,813
Total Assets............................................ 45,215 47,842 49,894 68,739 124,537
Long-term Debt (excluding current maturities)(4)........ 28,477 24,822 18,860 27,131 66,056
Redeemable Preferred Stock.............................. 970 970 820 453 253
Members' Investment..................................... 12,107 13,497 24,866 29,956 36,875
OPERATING DATA
Ratio of Long-Term Debt to Members' Investment.......... 2.15x 1.84x .76x .91x 1.79x
</TABLE>

- ------------------------

(1) The Company's operations commenced on January 1, 1994, so the financial
statements contain only seven months of operations for the year ended July
31, 1994. Accordingly, the financial statements for the year ended July 31,
1994 may not be comparable.

(2) Adjusted for the impact of the 3-for-2 stock split effective August 1, 1997.

(4) Reflects the issuance of $27 million of senior notes on August 11, 1998, and
the retirement of term loans and seasonal loans with the proceeds of such
issuance.

14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION

FORWARD-LOOKING STATEMENTS

The following discussion contains forward-looking statements. Such
statements are subject to risks and uncertainties, including those discussed
under "Risk Factors," that could cause actual results to differ materially from
those anticipated. The Company cautions readers not to place undue reliance on
such forward-looking statements.

RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEARS ENDED JULY 31, 1998 AND 1997

NET REVENUES. Net revenues for the fiscal year increased $48.9 million, or
69%, to $119.6 million. This increase was primarily due to increased pasta
volumes. Average unit prices of pasta were relatively unchanged in all segments
from last fiscal year.

Revenues from the retail segment increased by 69% due to higher sales
volumes. Most of the sales volume increase was due to new private label customer
business which was acquired either through the Primo purchase or due to the exit
from the private label market by Borden. A portion of the volume growth was
attributed to co-packing for other pasta manufacturers, which prior to the
purchase of Primo Piatto, Inc. ("Primo") was not available due to capacity
constraints.

Foodservice and ingredient revenues increased by 47% and 22%, respectively,
also due to higher sales volumes. Over half of the growth in foodservice sales
volumes is due to the annualization of volumes of new customers, with the
balance due to individual customer growth trends. The expansion of the Company's
participation with a major ingredient customer was the primary reason for the
increase in ingredient revenues.

While mill by-product sales volumes were up due to a 61% increase in durum
ground in the Company's milling facilities, revenues from these sales were up
only 14% as the Company utilized more of its semolina for internal pasta
production and average prices for mill feed and secondary flours declined by
over 20%.

COST OF PRODUCT SOLD. Most of the $41.9 million increase in cost of product
sold was due to increased pasta production volumes and the increase in the
proportion of retail sales. The average price of durum ground was unchanged from
last fiscal year.

MARKETING, GENERAL AND ADMINISTRATIVE ("MG&A") EXPENSES. Increased
marketing staffing and activities, including the efforts of the Company's
network of brokers, increased information technology expenditures and costs
associated with the acquisition of Primo were the primary reasons for the $3.2
million increase in MG&A expenses.

INTEREST EXPENSE. Interest expense increased $1.5 million, or 84%, to $3.3
million for the fiscal year ended July 31, 1998 due to higher debt levels
resulting from the acquisition of Primo.

NET INCOME. Net income for the fiscal year ended July 31, 1998 increased
$2.4 million to $9.4 million, a 35% increase over last year.

The Company anticipates that its earnings for the first and second quarters
of fiscal 1999 will be substantially less than its earnings for the first and
second quarters of fiscal 1998. The first and second quarters of fiscal 1998
benefited from the complete utilization of all of the Company's manufacturing
resources and low input costs relative to the market price of pasta which was
influenced by an industry shortage of capacity. The lower earnings comparison
for the first and second quarters of fiscal year 1999 is also due to the recent
competitiveness in the pasta market, temporary increases in its cost of goods
sold

15
<PAGE>

resulting from the requirement to toll mill a portion of the members' durum to
meet semolina needs, the Company's durum purchase commitments and costs
associated with a lower utilization of pasta manufacturing assets. Completion of
the mill expansion project, which is expected to occur in March 1999, will
eliminate the dependency on toll milling.

COMPARISON OF FISCAL YEARS ENDED JULY 31, 1997 AND 1996

NET REVENUES. Net revenues increased 40%, or $20.1 million, coinciding with
a 38% increase in pasta volumes sold.

Retail sales increased 67% over the same period last fiscal year and
represented 49% of total sales for the fiscal year, up from 40% in fiscal 1996.
The Company did not add any major retail customers in fiscal 1997, but the
impact of a full year of sales for three private label accounts added in fiscal
1996, significant increases at four existing private label accounts and the
development of the Company's "Zia Briosa" branded label sales provided most of
the increase. Revenues from co-packing were down $818,000 and government bid
sales decreased $600,000 from fiscal year 1996.

Representing 26% of fiscal 1997 total sales (34% in fiscal 1996),
foodservice sales volumes were up 7%. The foodservice increase was predominantly
the result of the addition of two new significant accounts late in fiscal 1996.
Several large accounts showed sales growth, but co-pack sales decreased $1.9
million.

Ingredient sales increased by 34% for the year and remained relatively
constant as a percentage of total sales at 25%. Most of the increase resulted
from a new customer added in the first quarter of fiscal 1996.

Overall, revenues were up by approximately $19.9 million due to pasta sales
volume increases. Lower average revenue per pound of pasta, on the other hand,
reduced revenues by almost $800,000.

While durum grind was up 28%, sales of flour and by-products were up only
13% as the Company utilized more of its semolina for internal pasta production.
Higher prices were realized for millfeed and secondary flours, but semolina
sales prices were down coinciding with lower durum prices. The net impact of
pricing was a reduction in revenues of $350,000, while the increased volume sold
increased revenues by approximately $970,000.

COST OF PRODUCT SOLD. Increased pasta production, with its resulting
increase in durum bushels ground, contributed $12.7 million of the $15.0 million
increase in cost of product sold. Because of short-term deficiencies during the
Company's expansion, the Company purchased over 10 million pounds of pasta more
in fiscal 1997 than in fiscal 1996, adding $3.5 million to the cost of sales. A
12% decrease in average cost of durum was partially offset by higher average
prices for packaging and freight.

MARKETING, GENERAL AND ADMINISTRATIVE ("MG&A") EXPENSES. Increased
marketing staffing and activities associated with the increase in sales and
increased information technology expenditures were the primary drivers in the
$1.0 million rise in MG&A expense. As a percentage of net revenues, however,
MG&A was unchanged at 5.0% of net revenues.

INTEREST EXPENSE. Interest expense for the year decreased by $311,000. The
average outstanding debt balance was $800,000 lower in fiscal 1997 than in
fiscal 1996, and the average interest rate was down one percent. The Company
capitalized $307,000 of interest in fiscal 1997. In fiscal 1997, the Company
adjusted its fiscal 1996 estimated patronage from the St. Paul Bank as the Bank
significantly reduced its patronage refunds for the calendar year fiscal 1996
from historical levels. Such adjustment increased fiscal 1997 interest expense
by $95,000. The Company has continued to accrue estimated patronage refunds at
the reduced level for calendar year 1997--such reduction increased fiscal 1997
interest expense by $167,000 from historical patronage levels.

NET INCOME. As a result of the above, net income increased $4,308,000, or
165%, over last year.

16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity requirements include the construction or acquisition
of manufacturing facilities and equipment and the expansion of working capital
to meet its growth requirements. The Company meets these liquidity requirements
from cash provided by operations, sales of equity and outside debt financing.

In early 1996, the Company raised $9.7 million in net proceeds through the
sale of equity stock to its existing members and other durum growers. These
proceeds, together with long-term debt financing, were used in the Company's
$20.5 million expansion of its mill and pasta manufacturing facilities in
Carrington, North Dakota. In February 1998, the Company issued $11.0 million in
new debt, assumed $13.9 million of existing debt and issued $2.3 million in
preferred stock to acquire 100% of the outstanding common stock of Primo. With
this acquisition, the Company acquired manufacturing facilities specializing in
retail production. The acquisition has allowed the Company to meet customer
product demands internally and has provided the Company with capacity for future
marketing efforts. The addition of this debt reduced the Company's equity
position as it relates to outstanding debt.

The Company has utilized outside financing on a short-term basis to fund its
operations and expansion projects until permanent financing is issued. Such
short-term financing has been provided by the St. Paul Bank for Cooperatives
("the Bank"). The Company has a short-term line of credit with the Bank of
$11,000,000. Borrowings against the line are secured by cash, receivables and
inventories.

The Company's long-term financing requirements have historically been
provided exclusively by the Bank. The Company entered into an amended loan
agreement (the "Loan Agreement") on July 23, 1998 with the Bank. The Loan
Agreement provides the Company with a total of approximately $72.8 million in
term and seasonal loans and commitments, bearing either variable or fixed
interest rates. Variable interest rates on term and seasonal loans are based on
the lender's cost of funds, and are subject to an adjustment (increase or
decrease) depending on whether the Company is in compliance with certain
financial covenants. The Company is charged a fee of .10% on the daily
outstanding balance of term loans and commitments payable on the last day of
each calendar quarter. The Company also is a charged a commitment fee of .625%
on the daily outstanding commitments payable on the last day of each calendar
quarter. The Loan Agreement also requires, among other things, that the Company
maintain a minimum current ratio, minimum net ownership ratio and minimum debt
service coverage ratio.

In August 1998, the Company issued $27.0 million in debt through a private
placement to institutional investors and used the proceeds to repay certain
outstanding long and short-term debt.

The various debt agreements with the Bank and institutional investors
obligate the Company to maintain or achieve certain amounts of equity and
certain financial ratios and impose restrictions on the Company. The Company is
required to maintain a current ratio of 1.35:1, a net ownership ratio (adjusted
to reflect a current ratio of 1.35:1) of not less than 40%, and a debt service
coverage ratio of not less than 1.25:1, measured for the previous twelve month
period ending July 31 of each year. The Company cannot, without Bank approval,
pay cash patronage greater than 20% of qualified patronage allocations, pay
dividends on capital stock in excess of minimum requirements, or revolve any
owner equity if such action will cause a noncompliance position in any financial
condition without the prior written consent of the Bank. The Company's
consolidated net worth may not be less than the sum of (a) $27,000,000 plus (b)
an aggregate amount equal to 30% of consolidated net income for each completed
fiscal year beginning with the fiscal year ended July 31, 1998. The Company's
trailing twelve month ratio of consolidated cash flow to consolidated fixed
charges may not be less than 2:1 at the end of each fiscal quarter, nor can the
ratio of consolidated funded debt to consolidated cash flow exceed 4:1 for the
period including July 31, 1999, 3.5:1 for the period ended January 31, 2000 and
3:1 thereafter. As of the date of this Prospectus, the Company is in compliance
with its debt agreements.

17
<PAGE>
The Company's net cash used in operating activities was $2.8 million for the
twelve months ended July 31, 1998, compared to cash provided by operating
activities of $8.0 million and $3.6 million for the years ended July 31, 1997
and 1996, respectively. The negative cash provided by operations for fiscal year
1998 was primarily due to increased inventories of $10.5 million and the
prepayment of expenses for marketing and consulting services and durum
purchases. The increase in inventories was in response to sales growth,
especially in the retail segment, and the Company's commitment to meeting its
customers' delivery requirements.

While cash provided by operating activities declined by $10.8 million from
last year, consolidated cash flow (as defined in the Company's loan agreements)
increased from $12.3 million to $18.3 million.

Cash used in investing activities are primarily for the construction and
installation of milling and pasta equipment and, in fiscal year 1998, for the
acquisition of Primo. Expenditures for the purchase of property and equipment
totaled $9.2 million, $17.8 million and $1.5 million for the twelve months ended
July 31, 1998, 1997 and 1996, respectively. Additionally, the Company expended a
net $8.0 million in cash to acquire Primo. The increase in spending in fiscal
years 1997 and 1998 was for the addition of the second mill and two additional
pasta manufacturing lines at the Company's Carrington, North Dakota facility. In
fiscal year 1998, the Company began the installation of a seventh pasta line in
Carrington, a $5.5 million project on which $4.0 million had been expended as of
July 31, 1998. In fiscal year 1998, the Company also entered into agreements for
an estimated $10.5 million mill expansion project and an estimated $1.3 million
ERP software replacement project, for which an aggregate of $1.5 million has
been expended as of July 31, 1998. The Company anticipates that the software
project will be completed by December, 1998 and that the mill expansion project
will be completed by March 1999.

Net cash provided by financing activities totaled $21.5 million and $8.6
million for the years ended July 31, 1998 and 1997, respectively, while net cash
used in financing activities was $0.7 million for the year ended July 31, 1996.
The $21.5 million was the result of the issuance of $27.2 million in long and
short-term debt. In fiscal 1997, such debt issuances totaled $10.9 million.
Patronage distributions to members of the Cooperative from profits on the grain
provided by the members totaled $4.7 million, $1.8 million and $0.9 million for
the years ended July 31, 1998, 1997 and 1996, respectively, which approximated
70% of the respective prior year's patronage earnings of the Cooperative. Such
distributions were declared in October and paid in November of each year. If the
Company's Board of Directors follows a consistent policy for the fiscal year
ended July 31, 1998, such a distribution would reduce the Company's equity
position below the 40% required under the terms of the loan agreements and would
require approval of the Company's lenders. While retention of these earnings
would maintain the equity position and reduce the Company's requirements for
additional equity, such retention would deny the members the opportunity to
assess their individual financial situation in making their investment
decisions.

The Company intends to use a portion of the net proceeds of this offering to
complete the mill expansion project, replace the working capital used in the
construction of the seventh pasta line and to re-enhance its equity position
which was reduced by the issuance and assumption of debt associated with the
Primo acquisition. The Company believes that cash generated from operations,
borrowings and net proceeds from the sale of at least 50% of the Shares in this
offering will be adequate to meet the capital and liquidity requirements of the
Company for the foreseeable future.

In the event that the Company does not receive at least 50% of the maximum
net proceeds from this offering, the Company will be required to consider other
alternatives which would provide access to the capital necessary for the
Company's continued activities and growth. Those strategies could include
deferral or reduction of capital expenditures, the adoption of a program to
retain a larger portion of patronage distributions than has been the Company's
historical practice, the adoption of a longer term unit retain program or
obtaining additional debt financing, which could be expected to be difficult to
obtain and could be expected to carry higher costs than the Company's previous
financing activities. In addition to consideration of such interim solutions,
the Board of Directors has engaged in preliminary analysis of

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longer-term alternative activities and strategies which would provide the
Company with access to suitable amounts of capital; that preliminary analysis
has included consideration of a wide range of possibilities, including, but not
limited to, obtaining equity investment from institutional investors, the use of
alternate business structures, and entering into joint ventures with either
strategic or financial goals. However, the Company has not pursued any of the
short-term or long-term alternatives to date and expects to do so only to the
extent that the offering of Shares described herein and the Company's operations
do not provide the necessary resources for the Company.

YEAR 2000

Many computer and other software and hardware systems currently are not, or
will or may not be, able to read, calculate or output correctly using dates
after 1999, and such systems will require significant modification in order to
be year 2000 compliant. This issue may have a material adverse affect on the
operations and financial performance of the Company because computer and other
systems are integral parts of the Company's manufacturing and distribution
activities as well as its accounting and other information systems and because
the Company will have to divert financial resources and personnel to address
this issue.

The Company is in the process of reviewing its computer and other hardware
and software systems and has recently begun upgrading systems that it has
identified as not being year 2000 compliant. The existing systems will be
upgraded either through modification or replacement. The Company currently
anticipates that this upgrading will be completed during fiscal year 1999. The
Company has alternate plans in the event that critical systems upgrading is not
completed on time which the Company believes are sufficient to meet the
Company's internal needs.

Although the Company is not aware of any material operational impediments
associated with upgrading its computer and other hardware and software systems
to be year 2000 compliant, the Company cannot make any assurance that the
upgrade of the Company's computer systems will be free of defects or that the
Company's alternate plans will meet the Company's needs. If any such risks
materialize, the Company could experience material adverse consequences to its
operations and financial performance, substantial costs or both.

Year 2000 compliance may also adversely affect the operations and financial
performance of the Company indirectly by causing complications of, or otherwise
affecting, the operations of any one or more of the Company's suppliers and
customers. The Company has begun contacting its significant suppliers and
customers as part of its Year 2000 compliance action plan to identify any
potential year 2000 compliance issues with them. The Company is currently unable
to anticipate the magnitude of the operational or financial impact on the
Company of year 2000 compliance issues with its suppliers and customers.

The Company expects to incur up to $500,000 during fiscal year 1999 to
resolve the Company's year 2000 compliance issues. All expenses incurred in
connection with becoming year 2000 compliant will be expensed as incurred, other
than acquisitions of new software or hardware, which will be capitalized.

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BUSINESS

INTRODUCTION

The Company is a North Dakota agricultural cooperative which was
incorporated on December 16, 1991. The Company owns and operates a vertically
integrated, state-of-the-art durum wheat milling and pasta producing facility in
Carrington, North Dakota. The facility, which became fully operational in 1994,
currently has the capacity to grind approximately seven million bushels of grain
annually and to produce approximately 270 million pounds of pasta annually. In
February 1998, the Company acquired all the outstanding stock of Primo Piatto, a
Minnesota corporation engaged in pasta manufacturing. Primo Piatto, now known as
the Minnesota Division of the Company, operates two processing plants and a
distribution center in the Minneapolis, Minnesota metropolitan area. The
addition of the Minnesota Division facilities has increased the Company's total
annual pasta production capacity to about 470 million pounds.

With membership limited to agricultural producers, the Company has a total
of approximately 1,100 members whose operations are located in North Dakota,
Minnesota or Montana. Each member of the Company (and each purchaser of Equity
Stock in this offering) must enter into a Growers Agreement with the Company.
That agreement obligates the member to deliver one bushel of durum wheat during
each processing year for each share of Equity Stock owned by that member,
subject to a pro rata downward adjustment depending on the production needs of
the Company.

THE MARKETS FOR PASTA AND DURUM PRODUCTS

PASTA

American consumers have increased their consumption of pasta during the past
ten years at a growth rate of between two and three percent per annum. As a
result, production of pasta products has also increased at a significant rate
during the last decade. The Company believes that the growth in domestic
consumption of pasta products has occurred as a result of a variety of factors.
Those factors include consumer perception of pasta as a "healthy" food, ease of
preparation, low cost in comparison to other types of foods, and flexibility of
pasta products as an ingredient in salads and entrees.

In 1997, consumption in North America exceeded 5.0 billion pounds. According
to the U.S. Department of Commerce, American consumers have increased their
average consumption of pasta during the past 10 years at an annualized growth of
approximately 2% to 3%. However, based on the Company's analysis of the
marketplace and trade and industry information, the Company believes that pasta
consumption growth rates in 1998 may approximate 1% to 2%. The Company estimates
that approximately 87.5% of domestic consumption is supplied by domestic
producers, with imported pasta totaling about 12.5% of the total U.S. demand for
dry pasta. In addition to the domestic market for dry pasta, much smaller
domestic markets exist for refrigerated and frozen pasta.

The domestic dry pasta market into which the Company sells its pasta
products consists of three basic segments, with each segment presenting
different product and sales and distribution requirements. The applicable market
segments are Retail, Ingredient and Foodservice.

RETAIL SEGMENT

The Retail segment, which includes sales to supermarkets, warehouse clubs,
discount stores, drug stores, and other consumer retail operations, represents
an estimated 37% of the total market for dry pasta in the United States. This
volume excludes dry macaroni and cheese dinners. Roughly 82% of the Retail
segment is represented by established national or regional pasta manufacturer
brands, including imports; the remaining 18% of the retail portion of the market
consists of retail sales under various private labels. The Company is focusing a
substantial portion of its marketing efforts on private label sales. A small
portion of the Retail segment consists of sales to federal and state government
entities.

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INGREDIENT SEGMENT

The Ingredient segment of the dry pasta market consists of pasta use by food
processors. Those entities use dry pasta as an ingredient or component in a
further-processed or combination food product. Such food products include dry
pasta dinners, including macaroni and cheese, frozen entrees, refrigerated
salads, canned entrees, baby food, and canned and dry soups. The Ingredient
segment represents about 43% of the total domestic dry pasta market. However,
roughly three quarters of the dry pasta used in the Ingredient market is
believed to be manufactured by end-product marketers for use in their own
products. Therefore, the Company is focusing its marketing efforts on those
companies that do not also manufacture the dry pasta ingredient for their
end-products. This portion of the Ingredient market represents approximately 500
million pounds of dry pasta.

FOODSERVICE SEGMENT

The Foodservice segment consists of sales of dry pasta to food preparation
operations such as restaurants, hotels, colleges and universities, elementary
and secondary schools, airlines, in-plant and in-office cafeteria facilities,
transportation services, and many other away-from-home eating places. The
Foodservice segment represents about 10% of the total domestic dry pasta market.
Marketing dry pasta to this segment of the marketplace generally consists of
selling to a network of competitive distribution organizations and buying
groups, and selling dry pasta to individual restaurant chains and other operator
organizations. The Company believes that over half the volume of pasta sold in
this market segment consists of sales of private label pasta products. A small
portion of the Foodservice segment consists of sales to federal and state
government entities.

CO-PACK ARRANGEMENTS

A portion of each end-user market segment is supplied under "co-pack"
arrangements between pasta manufacturers. These agreements involve the sale of
dry pasta products between pasta manufacturers in order to supply short-term
volume deficiencies such manufacturers suffer from time to time in meeting
customer requirements. Opportunities for co-pack arrangements have decreased in
recent periods due to the excess production capacity in the United States pasta
production industry. As described below, the Company's business involves co-pack
arrangements, although at a lower level than earlier in the Company's
operational history.

PRODUCTION AND PRODUCTS

The Company believes that its relationship with members provides a reliable
and consistent source of supply of milling-quality durum wheat. Pursuant to
Growers Agreements with the Company, the Company's members are obligated to
deliver durum wheat for the Company's use. The durum wheat is used in the
production of semolina which is then used by the Company to produce the
Company's dry pasta products. Upon delivery, the durum wheat is sampled,
weighed, precleaned and unloaded into the mill's grain silos. From the grain
silos, the durum wheat is preblended and conveyed into the mill's final mix
bins, which use electronic mass flow controllers for precision blending and flow
rate control. The wheat then proceeds to the cleaning and tempering sections of
the mill. In those sections of the process, foreign grains and weed seeds are
removed and the durum wheat is dampened to the optimum moisture level required
for milling. From the tempering bins, the cleaned and tempered durum wheat is
conveyed to the mill section of the Company's facilities, where grinding,
sifting and purifying is completed to produce a high quality semolina. In
addition to the semolina, five additional categories of product result from the
overall durum wheat milling and blending process: granulars, first clear (higher
grade) flour, second clear (lower grade) flour, semolina/durum wheat flour
blends, and millfeed. Millfeed and most second clear flour is sold primarily for
animal feed. Upon completion of the milling process, the Company's semolina,
first and second clear flour and mill feed are conveyed into bulk storage bins.

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From the semolina bulk bins, semolina is primarily conveyed to the Company's
pasta production semolina holding bins. (It may also be transferred to truck and
rail load-out bins for sale to other U.S. pasta manufacturers.) The first and
second clear flour is either blended with semolina and conveyed to pasta
production semolina holding bins or transferred to rail and truck load-out bulk
bins for sale to other users.

Pasta production is basically a mixing, extrusion and drying process.
Individual shapes are the result of extruding pasta "dough" through different
dies. Consistent monitoring and control is a key element in this process, which
begins with each production line receiving semolina from the holding bins. Each
pasta production line operates independently and produces either long or short
good items, the difference being in the way they are conveyed through the drying
operation. The long good items are conveyed while hanging on poles; the short
good items are conveyed on screens. Both processes utilize continuous ultra high
temperature dryers and coolers. The finished products are then collected in
storage silos and accumulators. The entire pasta production process is
controlled by programmable logic controllers located in control panels at the
beginning of each production line. This computer control system allows for all
of the production lines to be operated and monitored by one lead operator and an
assistant operator.

From the storage silos and accumulators, the finished dry pasta is conveyed
to various continuous box and film packaging machines. Dry pasta is packed to
meet different market segment and customer requirements. For example, macaroni
and cheese dinners are generally packed in 7 1/4 oz. boxes. All other pasta is
packed in containers ranging in size from 8 ounces to 2,000 pounds. The packaged
product is conveyed through metal detectors, check weighers and automatic case
packers. From the case packers, the case travels past jet print coders to a
palletizing and stretch wrapping operation.

The pasta products manufactured by the Company consist of over 80 different
shapes and are sold to customers in all market segments. In addition to the dry
pasta produced by the Company, the Company purchases less than 10 additional dry
pasta shapes from other manufacturers and resells them. This practice is widely
followed by many pasta manufacturers for efficiency reasons and allows
distribution of wider product lines to the Company's customers. Pasta products
purchased from other manufacturers historically has represented less than 3% of
the Company's total sales. With the acquisition of the assets comprising the
Company's Minnesota Division, outside purchases of pasta are expected to fall
below 1% of total sales.

In addition to its pasta products, the Company has in the past sold semolina
and durum wheat flour to other pasta manufacturers in bulk truckload or railcar
quantities. Such sales represented less than 4% of total net revenues in fiscal
year 1998. Given the Company's current need for all semolina it produces, the
Company does not anticipate having any semolina for sale until after completion
of the mill expansion project.

The cost of production of dry pasta is significantly impacted by changes in
durum wheat prices. The cost of milling quality durum wheat steadily increased
from the time the Company was organized and remained at high levels through
1996. A significant 1996 crop led to a reduction in prices in 1997, when the
1997 crop was significantly smaller and durum wheat prices increased. Worldwide,
many durum wheat producing areas are reporting a large crop for 1998, which has
led to lower durum wheat prices. This volatility with respect to the price of
the basic raw material for the Company's products leaves the Company subject to
wide variation in its costs from year to year. As a result, factors which impact
the size and quality of the durum wheat crop and the availability of such wheat
in the United States can have significant impact on the Company, and may have an
adverse impact. Those factors include such variables as the weather in the area
in which the Company's members reside, weather in other durum wheat production
areas in both the United States and other parts of the world, and import and
export policies and regulations.

Due to the intense competition present in the market for pasta products,
pasta manufacturers have generally been unable to implement price increases for
their dry pasta products in periods when higher

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durum wheat prices impacted the cost of pasta production. The Company believes
that such competition results primarily from excess production capacity in the
domestic pasta industry. Although Borden Pasta Division has closed five of its
ten manufacturing facilities in the past two years, some of those facilities
have remained in production under the ownership of other parties. Additional
industry capacity has been created through expansion programs followed by the
Company and American Italian Pasta Company and the establishment of new
production facilities by Barilla and other enterprises.

SALES, MARKETING AND CUSTOMERS

The Company markets its products through direct sales, supplemented by the
efforts of brokers retained by the Company. These brokers receive a commission
upon sale of the Company's products. Since its full operations began in 1994,
the Company's customer base for pasta products has continuously expanded. The
Company's pasta products are distributed on a broad basis throughout the U.S.
The Company does not directly export its pasta products, although several of its
customers have exported minor quantities. Within its pasta operation, the
Company has steadily reduced the level of concentration among its largest
customers. No one customer accounts for 10% or more of the Company's total
sales. The Company's top 10 customers accounted for 56% of total sales in fiscal
year 1997 and 48% in fiscal year 1998.

Sales in the Retail segment of the market represented approximately 55% of
the Company's pasta sales in fiscal year 1998, with sales to the Foodservice and
Ingredient markets representing about 25% and 20%, respectively. The current
distribution of the Company's sales reflects significant growth in the Company's
Retail segment and modest growth in the Foodservice and Ingredients segments.

GROWERS AGREEMENT; DURUM DELIVERY SYSTEM

The durum wheat purchased and used in the Company's operations is obtained
through the delivery of grain pursuant to the Growers Agreements between the
Company and its members. The contractual obligations imposed on each member
under the Growers Agreement are intended to insure the availability of
sufficient quantities of durum wheat for use in the Company's processing
operations. A copy of the Growers Agreement will be provided with this
Prospectus and each prospective purchaser is urged to read the Growers Agreement
in its entirety.

The Growers Agreement is paired with ownership of the Equity Stock. For each
share of Equity Stock held, the member is obligated to delivery to the Company,
subject to adjustment as described below, one bushel of No. 1 hard amber U.S.
durum wheat. Delivery schedules have been established for three marketing
periods consisting of four months each during the fiscal year, with each member
given notice of the member's delivery obligation for the upcoming marketing
period. If a member sells or transfers Equity Stock, the member's obligations
under the Growers Agreement must also be assigned to the purchaser or
transferee. The term of the Growers Agreement is indefinite and may be
terminated by the member, effective upon the last day of a processing year, upon
not less than 18 months advance notice. The Company reserves the right to
terminate the Growers Agreement and a grower's membership if the member does not
comply with the obligations of the Agreement or if the member otherwise fails to
meet the criteria for membership in the Company. Upon the Company's termination
of a member's membership in the Company, the member will cease to have voting
rights and other rights of membership and the Growers Agreement will be
cancelled effective as of the following July 31. Until the effective date of
cancellation of the Growers Agreement, the member's obligation to deliver durum
wheat to the Company pursuant to the terms of the Growers Agreement executed by
the member will remain in effect.

The Company may, depending on the marketing needs of the Company, reduce on
a pro rata basis to all members the quantity of durum wheat to be delivered. For
fiscal year 1998, the delivery obligation was approximately one bushel per share
of Equity Stock owned.

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Effective August 1, 1998, the durum delivery system to the Company has been
modified to include deliveries made through Northern Grains Institute (NGI). NGI
administers the delivery arrangements and acts as each member's grain handling
and delivery agent for the purposes of satisfying that member's obligations
under the Growers Agreement. NGI is responsible for arranging the logistics of
durum deliveries and handling payment and accounting matters. Consistent with
Dakota Growers' policies and the Growers Agreement, NGI assigns each member a
delivery date by lottery for each of the three marketing periods, which are as
follows:

August 1--November 30; December 1--March 31; April 1--July 31

NGI acts only as the agent for the member, and the member retains the
economic risk and legal liability for such deliveries under the Growers
Agreement. Each member must agree to be bound by the Durum Pool Agreement among
the members of Dakota Growers Pasta Company and NGI. A copy of the Durum Pool
Agreement will be provided to each member along with the Growers Agreement.

In advance of each marketing period, NGI will invoice the members for the
price of the durum to be delivered in the members' names to Dakota Growers. The
member must make payment under the invoice in the amount indicated thereon,
which shall be equal to Dakota Growers' deduction for retainage on the durum to
be delivered, plus the per bushel transaction fee. Dakota Growers' deduction for
retainage is currently 10% of the projected marketing period price (the Growers
Agreement allows for retainage as high as 20%). For the current fiscal year, NGI
will charge a per bushel transaction fee of $.03 per bushel. This fee is
refunded to the member on the final settlement date (45 days after the close of
each marketing period) if the member sells and delivers under his own contract
milling quality durum to NGI in an amount equal to or exceeding his quota.

Upon the member's payment of the invoice, NGI will make delivery for the
member and receive on behalf of the member the initial payment from Dakota
Growers. Dakota Growers will pay directly to the members the amount of the
retainage on the settlement date 45 days after the marketing period, but only to
the extent that earnings provide necessary funds to make such payments and which
allow DGPC to remain in compliance with agreements with its lenders.

Members may make delivery to the NGI durum pool by contacting NGI and
arranging for a delivery date. Payment for such durum will be made at the Dakota
Growers' spot market price within 14 days of delivery.

COMPETITION

OVERVIEW

The markets for semolina/durum wheat flour and pasta are highly competitive
in most segments and geographic regions. In all, there are an estimated 60 to 65
significant plants in the U.S. which manufacture dry pasta. The intensity of
competition varies from time to time as a result of a number of factors,
including: (1) the degree of industry capacity utilization, (2) comparative
product distribution costs, (3) ability to render distinctive service to
customers, (4) the price of raw materials, parimarily durum wheat, and (5) a
distinguishing or unique ability to provide consistent product quality in line
with customer specifications. The Company believes that, in a broad sense, the
single most influential factor on the intensity of competitive conditions is
industry capacity utilization. (It should be noted that detailed information
regarding pasta production is somewhat difficult to obtain, as many pasta
producers are closely-held enterprises.)

PASTA

The pasta market is highly competitive and includes several well-established
enterprises. Those competitors are both independent companies and divisions or
subsidiaries of other, larger, food products companies. In addition, according
to United States government data, the overall U.S. pasta market has

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experienced rapid penetration by foreign suppliers, particularly in the last
three to four years. Those suppliers include Italian, Turkish and Mexican
enterprises.

Total domestic industry capacity, excluding self-supply capabilities within
the ingredient segment, is broadly estimated at over 3.8 billion pounds of pasta
per year. The Company's top competitors in the open market include Borden,
Hershey Pasta Group Division, American Italian Pasta Company (including the
long-term contract to produce Muellers brand for Best Foods, Inc.), Philadelphia
Macaroni Co. Inc., Barilla, A. Zerega's Sons, Inc., and Gooch Foods (Archer
Daniel Midland). Together with the Company, these organizations represent in the
aggregate in excess of 50% of total industry production capacity and over 75% of
the capacity excluding self-supply. These companies market under their own
labels and also supply private label customers.

Industry changes will impact pasta market competition. In 1997, Borden
announced the closure of 5 of its 10 pasta plants and indicated that it planned
to exit the private label market, focusing on its branded label products.
Barilla, one of Italy's largest pasta marketers, is aggressively expanding its
branded label sales and is constructing a new pasta manufacturing facility in
Iowa.

Competition also comes from imported pasta, which represents approximately
12.5% of the total domestic market. The July, 1996 imposition of antidumping and
countervailing duties on certain imports from Italy and Turkey has had little
impact on pasta imports. Essentially flat from 1995 to 1996, imports were up
almost 4% in 1997 as the drop in imported pasta from Turkey was replaced by
increased imports from Mexico and Italy.

Approximately 25% of total domestic industry production capacity is
represented by the largest self-suppliers, which include Kraft, General Mills,
American Home Foods Products, Inc., Campbell Soup Co., Inc., ConAgra, Inc.,
Pillsbury and Stouffers Corp.

The Company markets in the retail area primarily as a private label
supplier. The Company's "Pasta Growers" label to date has most effectively
penetrated local area markets in the Dakotas and Minnesota, while "Zia Briosa"
is marketed through club stores on the west coast and its "Pasta Sanita" label
is sold in small niches ranging from Montana, Minnesota, Illinois and Ohio to
select markets in the northeast United States.

In the foodservice area, the Company also markets its pasta primarily as a
private label supplier, including sales to three of the largest foodservice
distributors in the country under their labels.

The Company focuses its ingredient marketing efforts on companies that do
not also manufacture the dry pasta ingredient for their end-products.

The Company sells most of its pasta under "purchase orders", whereby the
customer and the Company are not obligated for any pre-determined length of
time. Occasionally, a pricing commitment is agreed to with a term of one year or
less. In 1997, the Company and one of its major customers, U.S. Foodservice
(formerly JP Foodservice, Inc.), signed a long-term agreement including volume
and pricing commitments. The term of the agreement is through December 31, 2001.

The pasta manufacturing industry has experienced capacity changes and
restructuring in recent years. As indicated elsewhere herein, the Company
believes that current pasta production capacity exceeds the current demand for
pasta. The Company believes that certain competitors have elected to expand
production capacity in situations where those competitors have experienced
direct demand for their finished pasta products. In addition to the impact of
excess production capacity, the Company believes that price competition among
producers of branded pasta products has led to a reduction in the average price
of branded product. To the extent that the price differential between branded
pasta products and private label pasta products is less than in the past,
private label pasta products, such as those produced by the Company, will
experience greater competition than when the price differential is greater.

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SEMOLINA AND DURUM WHEAT FLOUR

Given the commodity nature of the market for semolina and durum flour, sales
volume is largely dependent on delivered price when adequate supply conditions
exist. Italgrani USA, Inc., Harvest States Cooperatives and Miller Milling all
have two or more active mills, and collectively are believed to represent more
than 60% of total domestic milling capacity; The Company's current milling
operation represents about 8% of total domestic milling capacity. Some of the
mills operated by the Company's competitors have established integrated pasta
production capabilities or have developed alliances with pasta manufacturers.
The Company believes that the integration of its milling and pasta production
facilities enables the Company to compete more effectively with those
competitors who also have integrated facilities.

GOVERNMENT REGULATION

TRADE POLICIES

The operations of the Company may be affected by governmental policies and
regulations, including those impacting the amount of durum wheat imported from
Canada and the volume of pasta imports.

Pricing policy actions by the Canadian Wheat Board may have resulted in
increased sales of Canadian durum wheat in the United States and lower durum
wheat prices. These actions have resulted in complaints from durum growers in
the United States, and a continuing dispute over possible restrictions on durum
wheat imports. If restrictions are implemented, it could impact both the milling
and pasta areas of the Company's business operations.

Lower durum wheat prices could ultimately lead to reduced pasta production
costs and provide opportunity for profit improvements for pasta manufacturers
without requiring price increases for finished pasta products, while higher
durum prices could trigger price increases or reduced margins dependent on the
industry capacity utilization and pasta import levels.

FOOD AND DRUG ADMINISTRATION REGULATION

As a producer of products intended for human consumption, the Company's
operations are subject to certain federal and state regulations, including
regulations promulgated by the United States Food and Drug Administration. The
Company believes that it is in material compliance with the applicable
regulatory requirements.

ENVIRONMENTAL REGULATION

Dakota Growers is subject to extensive federal and state environmental laws
and regulations with respect to water and air quality, solid waste disposal and
odor and noise control. The Company conducts an on-going control program
designed to meet these environmental laws and regulations. There are no pending
regulatory enforcement actions and the Company believes that it is in
substantial compliance with applicable environmental laws and regulations.

The Company cannot predict whether future changes in environmental laws or
regulations might increase the cost of operating its facilities and conducting
its business. Any such changes could have adverse financial consequences for the
Company and its members.

INTELLECTUAL PROPERTY RIGHTS

The Company relies on a combination of trade secret, and trademark law,
nondisclosure agreements and technical measures to establish and protect its
proprietary rights to its products and processes. The Company owns the following
trademarks that have been registered with the United States Patent and Trademark
Office, the corporate logo, Dakota Growers Pasta Company-Registered Trademark-,
the design on its packaging, Pasta Growers-Registered Trademark- and Pasta
Sanita-Registered Trademark-. The Company also has a pending trademark
application for Zia Briosa-TM-.

RESEARCH AND DEVELOPMENT

The Company supports research and development programs in North Dakota which
focus on improved varieties of durum wheat, including the Durum Education
Research and Marketing Committee

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and the activities of NGI. The Company, as part of its operations, maintains a
modern, well-equipped laboratory facility designed primarily to evaluate and
maintain high quality standards for incoming raw materials, ongoing product
manufacturing, and development of new pasta shapes.

EMPLOYEES

As of the date of this Prospectus, Dakota Growers had full-time
employees. Qualified full-time employees are provided health insurance, vacation
and holiday plans and are eligible to participate in the Company's 401(k)
savings plans. The Company considers its employee relations to be excellent.
Certain hourly employees at the recently acquired Minnesota Division facilities
are covered by collective bargaining agreements which expire June 30, 1999 and
December 1, 1999.

LEGAL PROCEEDINGS

From time to time and in the ordinary course of its business, the Company is
named as a defendant in legal proceedings related to various issues, including
worker's compensation claims, tort claims and contractual disputes. Other than
such routine litigation, the Company is not currently involved in any material
legal proceedings. In addition, the Company is not aware of other potential
claims which could result in the commencement of legal proceedings. The Company
carries insurance which provides protection against certain types of claims, up
to the policy limits of the Company's insurance.

PROPERTY AND PROCESSING FACILITIES

Dakota Growers operates a vertically integrated, state of the art durum
milling and pasta manufacturing plant in Carrington, North Dakota. The plant,
which became fully operational in January 1994 and has been expanded in 1996,
1997 and 1998, has the capacity to grind over seven million bushels of grain
each year. It has grain silos with a capacity to hold 370,000 bushels. The plant
has seven pasta production lines, three of which are operated as long goods
lines and four of which are short goods lines. The fourth short goods line was
added in July 1998. Electronic control scales are used throughout the facility
in order to continuously track production and yields. A central computer control
room allows one operator to monitor efficiently both the milling and the pasta
operations. Total dry pasta manufacturing capacity is 270 million pounds
annually. The Company owns the physical plant, and the land on which it is
located.

In early 1998, the Company acquired physical assets consisting of two pasta
production facilities and a distribution center located in the Minneapolis
metropolitan area. Those assets are operated as the Company's Minnesota
Division. The larger of the two production facilities, located in New Hope,
Minnesota, contains six production lines, capable of producing approximately 170
million pounds of dry pasta each year. The smaller production facility, located
in Minneapolis, Minnesota, contains four production lines and is capable of
producing approximately 30 million pound of dry pasta each year.

In order to support the expansion of its pasta manufacturing capabilities,
the Company is currently engaged in a major upgrade of its durum wheat grinding
and semolina milling facilities as well. The Company has launched an $11 million
capital improvements program for the milling portion of its Carrington, ND
plant, which is expected to be completed in February 1999. The expansion will
increase the Company's durum milling capacity from its current level of 20,000
bushels per day to approximately 40,000 bushels per day. In addition, the
expansion will include construction of additional grain storage silos, raising
the Company's on-site durum storage capacity from the present level of 370,000
bushels to 620,000 bushels. The Company expects that this expanded durum milling
capacity will be sufficient to supply the future semolina needs of both the
Carrington plant and the Minnesota Division facilities. As the Minnesota
Division must presently source its semolina flour on the open market, the
Company anticipates significant cost savings as the Company's increased durum
milling capacity permits the complete vertical integration of the Minnesota
Division facilities into the Company's operations.

In addition to these production facilities, the Company leases a warehousing
and distribution center in Fargo, North Dakota, and owns the Minnesota Division
distribution center in New Hope. These facilities are supplemented by various
public warehouses where inventory is maintained and redistributed for the needs
of specific customers.

27
<PAGE>
MANAGEMENT

BOARD OF DIRECTORS

The Board of Directors consists of nine member-directors, each of whom
represents one of the nine geographic districts. Each Director is elected by
members residing in the district represented by the directors. Every three
years, the Bylaws require that the incumbent Board of Directors appoint a
redistricting committee to review the boundaries of the districts. The committee
will recommend any changes in the district boundaries necessary or appropriate
to maintain equitable representation of not more than a fifteen percent variance
of the number of members in each district. If the Board of Directors approves
the recommendations of the committee, the recommendation will be submitted to
the members for approval, rejection or modification. The next redistricting
review is scheduled to occur in calendar year 2000.

The table below sets forth certain information concerning the current
directors of the Company. The directors have been elected to serve three-year
terms expiring at the annual meeting in the calendar years indicated in the
table below.

<TABLE>
<CAPTION>
NAME AND ADDRESS AGE DISTRICT TERM EXPIRES
- ------------------------------------------------------------------------- --- ------------------ ------------
<S> <C> <C> <C>
John S. Dalrymple, III(1)(2) ............................................ 50 Cass-Barnes 2000
P.O. Box 220 Number 4
Casselton, ND 58012

Allyn K. Hart ........................................................... 59 Northeast 1999
RR 1, Box 61 Number 6
Wales, ND 58281

Roger A. Kenner(3) ...................................................... 49 Lake Region 2001
RR 2, Box 53 Number 8
Leeds, ND 58346

James F. Link ........................................................... 71 Southeast 2000
1304 4th Street North Number 3
Wahpeton, ND 58075

Eugene J. Nicholas(1)(2) ................................................ 53 North Central 2001
RR 1 Number 7
Cando, ND 58324

John D. Rice, Jr.(3) .................................................... 44 Durum Triangle 2000
RR 2, Box 104 Number 9
Maddock, ND 58348

Jeffrey O. Topp ......................................................... 39 South Central 2001
RR 1, Box 23 Number 2
Grace City, ND 58445

Curtis R. Trulson(1)(2) ................................................. 46 Western 1999
RR 1, Box 62 Number 1
Ross, ND 58776

Michael E. Warner(1)(2) ................................................. 48 East Central 1999
RR 2, Box 119 Number 5
Hillsboro, ND 58045
</TABLE>

- ------------------------

(1) Member of Compensation Committee

(2) Member of Audit Committee

(3) Mr. Kenner and Mr. Rice are first cousins.

28
<PAGE>
JOHN S. DALRYMPLE III. Mr. Dalrymple has been chairman of the board of
directors of the Company since 1991. He has been a state representative since
1984. Mr. Dalrymple also is Chairman of the House Appropriations Committee and
Chairman of the Budget Section of the North Dakota House of Representatives. Mr.
Dalrymple also serves on the board of directors of United Spring Wheat
Processors and the U.S. Durum Growers Association. He has been a farmer in the
Casselton area since 1971. He received a bachelor of arts in American Studies
from Yale University.

ALLYN K. HART. Mr. Hart has been a director of the Company since 1991. He
has been a farmer in the Cavalier area since 1961. He is secretary and a member
of the board of directors of Cavalier County Job Development Authority. Mr. Hart
also serves on the board of directors of Maple Manor Nursing Home. Mr. Hart
received a bachelor of science from North Dakota State University.

ROGER A. KENNER. Mr. Kenner has been a director of the Company since 1991.
He is the State Chairman of the North Dakota Simmental Association. He also
serves on the board of directors of North Dakota State University President's
Advisory Council and the North Dakota Certified Seed Producer. He has been a
farmer in Leeds since 1964. Mr. Kenner received a bachelor of science in 1971
from North Dakota State University.

JAMES F. LINK. Mr. Link has been a director of the Company since 1991. Mr.
Link has served on the boards of directors of Farm Credit and Minn-Dak Farmers
Cooperative. Mr. Link served on the Pro-Gold Corn Plan Development Committee. He
has been a farmer in the Wahpeton area since 1947.

EUGENE J. NICHOLAS. Mr. Nicholas has been a director of the Company since
1991. Mr. Nicholas has been a state representative since 1974. He serves as
chairman of the North Dakota House of Representatives Agriculture Committee. Mr.
Nicholas also serves on the boards of directors of the U.S. Durum Growers
Association, Towner County Bank, Cando, and the Durum Triangle Economic
Development Committee. Mr. Nicholas received a bachelor of science in Business
Economics from North Dakota State University.

JOHN D. RICE, JR. Mr. Rice is the vice chairman of the board of directors
of the Company and has been a director of the Company since 1991. Mr. Rice
currently serves on the board of directors of the National Bank, Harvey, N.D.,
and as clerk of the Educational Trust. He also served on the boards of directors
of National Pasta Association and U.S. Durum Growers Association. Mr. Rice also
serves as a trustee for Maddock Zion Lutheran Church. He has been a farmer in
the Maddock area since 1968. Mr. Rice received an associate of science in
agricultural economics from North Dakota State University.

JEFFREY O. TOPP. Mr. Topp has been a director of the Company since 1991. He
is also president of the Eddy County Agriculture Improvement Association. He is
a partner of T-T Ranch. He has been a farmer in the Grace City area since 1978.

CURTIS R. TRULSON. Mr. Trulson has been secretary/treasurer of the Board of
Directors and a director of the Company since 1991. He serves on the board of
directors of the North Dakota Grain Growers Association and previously served on
the board of directors of the National Association of Wheat Growers. He has been
a farmer in Mountrail County, North Dakota, since 1975. Mr. Trulson received a
bachelor of science in Business Administration from the University of North
Dakota.

MICHAEL E. WARNER. Mr. Warner has been a director of the Company since
1992. Mr. Warner has been a farmer since 1967 and is currently owner/operator of
Mike Warner Farm near Hillsboro, North Dakota. Mr. Warner is chairman of the
board of directors of United Spring Wheat Processors and Northern Plains
Consortium, a regional development group. He also serves on the boards of
directors of Warner Equipment Co., and Meritcare Health Systems of Fargo, North
Dakota. Mr. Warner received a bachelor of science in pharmacy from North Dakota
State University.

29
<PAGE>
DIRECTORS COMPENSATION

The Board of Directors meets monthly. The Company provides its directors
with minimal compensation, consisting of (i) a per diem payment of $200 (except
for the Chairman who receives $250 per day) for any day on which a director
undertakes activities on the Company's behalf, including board meetings and
other Company functions, (ii) a monthly fee of $450, and (iii) reimbursement for
out-of-pocket expenses incurred on behalf of the Company.

EXECUTIVE OFFICERS

The table below lists the principal officers of the Company. Officers are
elected annually by the Board of Directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- -------------------------------------------------------------------------
<S> <C> <C>
Timothy J. Dodd................. 43 President and General Manager
Gary E. Mackintosh.............. 46 Executive Vice President, Sales and Marketing
Susan M. Clemens................ 37 Vice President, Human Resources and Administration
James D. Cochran................ 31 Vice President, Supply Chain
Thomas P. Friezen............... 39 Vice President, Finance
Maurice D. Hanson............... 52 Vice President, Logistics
Radwan Ibrahim.................. 54 Vice President, Quality Assurance
John C. Lawrie.................. 48 Vice President, Operations (Minnesota)
David E. Tressler............... 44 Vice President, Operations (North Dakota)
</TABLE>

TIMOTHY J. DODD. Mr. Dodd is the President and General Manager of the
Company. Prior to joining the Company in December 1991, he had been since 1988
the vice president of manufacturing of the American Italian Pasta Co., a durum
milling and pasta production company located in Missouri. He received a bachelor
of science in milling science and management from Kansas State University.

GARY E. MACKINTOSH. Mr. Mackintosh has been Executive Vice President--Sales
and Marketing since August 1, 1998. Mr. Mackintosh has served as Vice
President--Sales from 1996 to 1998 and General Manager of Sales from 1991 to
1995. From 1988 to 1991 he was director of retail sales at American Italian
Pasta Co. From 1978 to 1988 he was regional sales manager for The Prince
Company, a pasta manufacturer. He received a bachelor of business in
administration from The Barney School, University of Hartford, Connecticut.

SUSAN M. CLEMENS. Ms. Clemens has been Vice President--Human Resources and
Administration since February 20, 1998. From August 1997 to February 1998, she
was Vice President of Human Resources and Administration at Primo Piatto, Inc.
Ms. Clemens was Senior Human Resources Manager at Borden Foods from January 1993
to August 1997. Ms. Clemens also is a director of U-Ship, Inc. and Faribault
Woolen Mills. Ms Clemens has a bachelor degree in business and education from
the University of Wisconsin--Stout.

JAMES D. COCHRAN. Mr. Cochran has been Vice President--Supply Chain since
February 20, 1998. From 1997 to 1998, he was Vice President of New Business
Development at Primo Piatto, Inc. Mr. Cochran held various positions with Borden
Foods from 1990 to 1996, most recently as Materials Manager. Mr. Cochran has a
bachelor of science degree in industrial engineering from Purdue University and
a masters degree in manufacturing engineering from the University of St. Thomas,
St. Paul, Minnesota.

THOMAS P. FRIEZEN. Mr. Friezen joined the Company in April 1995 as Vice
President--Finance. From September 1991 to April 1995 he was the Accounting
Supervisor at Arizona Electric Power Cooperative, an electricity generation and
transmission company. Prior to that Mr. Friezen was the Accounting Manager

30
<PAGE>
at Williston Basin Interstate Pipeline, a natural gas transmission company. He
received a bachelor of science in accounting from University of Mary, Bismarck,
North Dakota and is a certified public accountant.

MAURICE D. HANSON. Mr. Hanson has been with the Company since 1993. From
1989 to 1991, he was plant manager for American Italian Pasta Company. Before
that, Mr. Hanson worked for various food manufacturers for nine years as traffic
manager. He received his bachelor of science degree in business from Valley City
State University, North Dakota.

RADWAN IBRAHIM. Mr. Ibrahim has been Vice President--Quality Assurance
since February 20, 1998. From August 1997 to February 1998, he served as Chief
Technical Officer and Vice President of Primo Piatto, Inc. Mr. Ibrahim also was
Group Quality Control Manager at Borden Foods from 1992 to 1997. Mr. Ibrahim
received a bachelor of science degree in food science and a masters degree in
cereal technology from Alexandria University, Egypt and holds a Ph.D. degree in
cereal chemistry from North Dakota State.

JOHN C. LAWRIE. Mr. Lawrie, Vice President--Operations (Minnesota
facilities) since February 28, 1998, has over 25 years experience in the food
industry, with the last 16 years in the pasta industry. He spent 13 years as a
plant manager with Borden before organizing the management buy-out of the New
Hope and Minneapolis pasta plants from Borden in 1997. He received his bachelor
of science degree from Edinburgh University in Scotland.

DAVID E. TRESSLER. Mr. Tressler, currently Vice President--Operations
(Carrington facilities) joined the Company in February 1992 as a Project
Engineer. Prior to joining the Company, Mr. Tressler worked as a director of
engineering at American Italian Pasta Comany, where he was responsible for
monitoring the completion of the initial pasta plant. From 1977 to 1988 he was
plant engineer at International Multi-Foods, Inc. He received a bachelor of
science degree in industrial engineering from Iowa State University at Ames,
Iowa.

31
<PAGE>
EXECUTIVE COMPENSATION

The following table summarizes the amount of compensation paid to the
Company's President and General Manager and each of the Company's most
highly-compensated officers officers for services rendered to the Company during
the fiscal year ended July 31, 1998 and the two prior fiscal years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
---------------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS
- ------------------------------------------------- --------- ---------- --------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Timothy J. Dodd ................................. 1998 $ 167,692 $ 56,561 $ 5,203 506
President and General Manager 1997 145,577 1,531 1,907 3,413
1996 120,000 1,426 1,800 --
Gary E. Mackintosh .............................. 1998 133,462 16,531 2,882 338
Executive Vice President--Sales and Marketing 1997 97,153 6,720 328 760
1996 72,038 14,800 332 --
Thomas P. Friezen ............................... 1998 103,519 14,531 4,232 169
Vice President, Finance 1997 75,715 1,531 757 542
1996 77,473 1,572 60 --
David E. Tressler ............................... 1998 91,454 21,226 1,198 --
Vice President, Operations 1997 78,728 31,226 1,820 --
(North Dakota) 1996 79,560 1,126 1,564 --
John C. Lawrie(2) ............................... 1998 46,891 -- 1,934 --
Vice President, Operations 1997 -- -- -- --
(Minnesota) 1996 -- -- -- --
</TABLE>

- ------------------------

(1) Includes the Company's 401(k) matching contribution and with respect to Mr.
Dodd, Mr. Mackintosh and Mr. Friezen the taxable portion of reimbursable
business expenses.

(2) Mr. Lawrie joined the Company in February, 1998 in connection with the Primo
acquisition.

The following table sets forth certain information with respect to stock
options granted to the named executive officers during the fiscal year ended
July 31, 1998.

OPTION GRANTS IN FISCAL YEAR 1998

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PREFERRED AT ASSUMED ANNUAL RATES OF
SHARES PERCENT STOCK PRICE APPRECIATION
UNDERLYING OF TOTAL EXERCISE FOR OPTION TERM(1)
OPTIONS OPTIONS PRICE EXPIRATION --------------------------
NAME GRANTED GRANTED ($/SH) DATE 5% 10%
- ----------------------------------- ---------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Dodd.................... 506 50% $150 1/1/2008 $ 48,576 $ 120,934
Gary E. Mackintosh................. 338 33% $150 1/1/2008 32,448 80,782
Thomas P. Friezen.................. 169 17% $150 1/1/2008 16,224 40,391
David E. Tressler.................. -- -- -- -- -- --
John C. Lawrie..................... -- -- -- -- -- --
</TABLE>

- ------------------------

(1) The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately prior to expiration of the option term
using the 5% and 10% appreciation rates established in SEC regulations,
compounded annually. The potential realizable value is not intended to
predict future appreciation of the price of the stock. The values shown do
not consider nontransferability or termination of the unexercisable options
upon termination of such employee's service relationship with the Company.

32
<PAGE>
The following table summarizes the total number of options held at the end
of fiscal year 1998 by the named executive officers. No options were granted or
exercised in fiscal 1998.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND
FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT JULY 31,
OPTIONS AT JULY 31, 1998 1998(1)
--------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ---------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Timothy J. Dodd........................................... 2,000 1,919 $ 160,000 $ 128,220
Gary E. Mackintosh........................................ 1,098 -- $ 70,940 --
Thomas P. Friezen......................................... 711 -- $ 48,430 --
David E. Tressler......................................... -- -- -- --
John C. Lawrie............................................ -- -- -- --
</TABLE>

- ------------------------

(1) There is no public trading market for the Company's securities. The values
have been calculated assuming the conversion of each preferred share into 24
shares of Equity Stock and based on the offering price of $7.50 per Share to
current members less the option exercise price (before the payment of
applicable taxes.)

COMPENSATION PLANS

On January 31, 1997 the Compensation Committee of the Board of Directors
(the "Compensation Committee") adopted the Dakota Growers Incentive Stock Option
Plan (the "Plan"). The purpose of the Plan is to provide benefits to
participants in the form of additional compensation for services which have been
or will be rendered as an inducement for continuing as employees of the Company.
The Plan was ratified by the members at the annual meeting in January 1998.

The Plan is administered by the Compensation Committee. The Compensation
Committee or the Board of Directors has the power to determine the key
management employees of the Company to receive options and the number of shares
to be optioned to each of the employees.

Options granted under the Plan are for the purchase of Series C Convertible
Preferred Stock at fair market value, convertible into Equity Stock at the
option of the employee, under the applicable conversion ratio. The maximum
number of preferred shares which may be issued pursuant to options granted under
the Plan is fifteen thousand (15,000). Each share of Series C Preferred Stock
carries a non-cumulative dividend of 6% per annum. Under the terms of the Plan,
the option price may not be less than the fair market value of the Series C
Preferred Stock at the time the option is granted. To date no options have been
exercised or converted.

The conversion ratio is 24 shares of Equity Stock for each share of Series C
Preferred Stock after adjustment for the 3-for-2 stock split declared effective
August 1, 1997. The conversion ratio is proportionately adjusted if the Company
increases the outstanding shares of Equity Stock without the payment of
consideration by the members for such additional shares (e.g. stock split, stock
dividend or other action).

RELATED PARTY TRANSACTIONS

Each of the Company's directors is also an agricultural producer and a
member of the Company. By virtue of their membership status and ownership of
Equity Stock, each director is obligated to deliver durum wheat to the Company.
The Company makes payments to each director for such deliveries and the payments
often exceed $60,000. However, the amount and terms of the payments received by
the directors (or the entities they represent) are made on exactly the same
basis as those received by other members of

33
<PAGE>
the Company for the delivery of their durum wheat. Except for durum wheat sales,
none of the directors or executive officers of the Company have engaged in any
other transactions with the Company involving amounts in excess of $60,000.

PRINCIPAL SHAREHOLDERS

Since the Company is a cooperative with voting rights arising from ownership
of a share of Membership Stock, each member has equal voting rights of one vote
per member. No director or officer owns beneficially more than .65% of the
Company's issued and outstanding Membership Stock; the directors as a group
beneficially own approximately 2.3% of the issued and outstanding Membership
Stock. With regard to the Equity Stock, no director or officer owns beneficially
more than 3.5% of the issued and outstanding shares. The directors, as a group,
beneficially own approximately 8.7% of the Company's issued and outstanding
Equity Stock.

34
<PAGE>
DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING STOCK

Dakota Growers is authorized to issue 2,000 shares of Membership Stock with
a par value of $125 per share, 25,000,000 shares of Equity Stock with a par
value of $2.50 per value per share, and 50,000 shares of Preferred Stock with a
par value of $100 per share. As of the date of this Prospectus, 1,101 shares of
Membership Stock, 7,356,059 shares of Equity Stock, and 25,563 shares of
Preferred Stock are issued and outstanding.

Pursuant to the Company's Bylaws, by becoming a member of the cooperative,
the member acknowledges that the terms and provisions of the Articles of
Association and Bylaws and any reasonable policies, rules and regulations
adopted by the Board of Directors constitute a contract between the Company and
each member. This provision reflects decisions of the North Dakota Supreme Court
regarding the contractual relationship between a cooperative and its members. As
a result of the court decision and the applicable provisions of the Bylaws, the
relationship between the Company and its members is as if each member had
individually signed a separate document containing the terms and provisions of
the articles, Bylaws and all policies, rules, and regulations adopted by the
Company's Board of Directors. As a result, either the Company or a member would
have the ability to bring a claim for breach of contract if the other party were
to violate the terms of the various instruments constituting the contract
between the Company and its members.

QUALIFICATIONS FOR SHARE OWNERSHIP

Ownership of both Membership Stock and Equity Stock is restricted to
producers of agricultural products in the territory in which the Company is
engaged in business. All members of the Company must execute a Growers Agreement
and agree to abide by the Company's Bylaws and rules and policies of uniform
application.

Pursuant to the Company's governing documents, a stockholder's membership in
the Company automatically terminates upon ceasing to be a producer of
agricultural products or upon failing to patronize the Company for thirteen
consecutive calendar months. In addition, membership in the Company may be
terminated for cause, by action of the Board of Directors, provided the member
has an opportunity to appear before the Board and be heard. Written notice and a
statement of the alleged cause for a proposed termination of membership must be
mailed to the member at least ten days before the directors' meeting at which
the proposed termination is to be decided. "Cause" includes intentional or
repeated breach of the Bylaws, rules or regulations of the Company or failure to
make timely payment of debts to the Company, breach of any contract between the
member and the Company, and other causes determined by the Board of Directors in
the exercise of honest and good faith business judgment. Whether a membership is
subject to termination for breach of a contract may be determined by the Board
of Directors without regard to the commencement or outcome of any litigation
arising from the contract.

Upon termination of membership in the Company, a member will cease to have
voting rights and other rights of membership. However, loss of membership rights
will not relieve a member of the member's obligation to deliver durum wheat to
the Company pursuant to the terms of the Growers Agreement executed by the
member or excuse a terminated member from performing any other obligations under
a contract between the Company and the terminated member. The Growers Agreement
remains in effect until the July 31 next following the termination of
membership. The Company has no obligation to repurchase the Membership Stock or
Equity Stock of a member determined to be ineligible as a member.

35
<PAGE>
MEMBERSHIP STOCK

No member may own more than one share of Membership Stock. Only holders of a
share of Membership Stock are entitled to vote for the election of directors and
on other matters relating to the management and affairs of the Company
determined by shareholders. Each member has an equal vote on all matters,
including the election of directors (but only the director representing the
member's district), regardless of the volume of business done with Dakota
Growers or the number of shares of Equity Stock owned. One director is elected
from each of the Company's nine districts by the members voting in each such
district. The Company's Articles of Association prohibit the payment of
dividends on Membership Stock.

The Board of Directors may, by resolution, determine that a member is no
longer eligible for membership. Upon such termination, the member will cease to
have voting rights and other rights of membership. The Company has no obligation
to repurchase the Membership Stock of a grower determined to be ineligible as a
member. In addition, the Board of Directors may recall the Equity Stock or
retire any accumulated patronage capital.

The Company's Bylaws allow members to transfer shares of Membership Stock
upon approval by the Company's Board of Directors. However, the Company's
practice is to redeem the member's share of Membership Stock for its par value
and then issue the transferee a new share of Membership Stock upon payment of
the par value.

EQUITY STOCK

Ownership of shares of Equity Stock entitles and obligates a member to
deliver durum wheat (one bushel for each share owned) to the Company. The Board
may, depending on the marketing needs of the Company, reduce on a pro rata basis
to all members the quantity of durum wheat to be delivered. Shares of Equity
Stock have no voting rights. The Company has no obligation to repurchase the
Equity Stock of a grower found to be ineligible for continued membership.

Noncumulative dividends on the Equity Stock of not greater than six percent
(6%) of the par value of the Equity Stock may be fixed and declared by the Board
of Directors. To date, the Board of Directors has not declared the payment of
any cash dividends, other than patronage.

Patronage is based on the net proceeds of the Company, excluding certain
reserves, and is distributed and credited to patrons who are members of the
Company in accordance with the ratio by which their patronage bears to total
patronage. At least once annually, the Board of Directors determines and
allocates patronage which is equal to net income of the Company resulting from
members' business. In order for the Company to deduct the dividend for tax
purposes, the Company must pay 20% of the patronage in cash. In addition to the
20%, the Board may pay out as much as is prudent after establishing reasonable
and necessary reserves. Any amounts not distributed in cash are credited to the
patronage equity accounts of patrons who are members of the Company, in
accordance with the ratio by which their patronage bears to total patronage, and
are referred to as patronage equity credits. The Board of Directors, in its
absolute discretion, taking action pursuant to reasonable policies of uniform
application, may determine the manner of distribution and payment of patronage,
which may be in cash, credits, certificates of interest, revolving fund
certificates, letters of advice, promissory notes, or other certificates or
securities of the Company or of other associations or cooperatives, in other
property, or in any combination thereof.

Pursuant to the Bylaws, shares of Equity Stock are subject to assessment
solely for the purpose of payment of any debt of the Company incurred under a
contract specifically providing for assessment of the members' Equity Stock as a
source of funds to pay the debt after default by the Company. However, shares of
Equity Stock are not subject to assessment after the Equity Stock has attained a
market value exceeding book value. Currently, based on the limited information
available to the Company with respect to transfers

36
<PAGE>
of the Company's Equity Stock in the limited, private market for such Equity
Stock, the Company believes that the Equity Stock has a transfer price that
exceeds book value. Moreover, the Company included the assessment provision in
its Bylaws at the request of a lender. The loan with which the provision was
associated has been restructured and the Company currently is not a party to any
contract containing a provision which would trigger the ability of the Company
to levy an assessment on shares of Equity Stock.

PREFERRED STOCK

Preferred Stock may be held by persons who are not members of the Company.
Preferred stockholders have no voting rights or other rights of membership. The
Company's Articles of Association provide that the Board of Directors may fix
and declare noncumulative annual dividends of not greater than six percent (6%)
of the par value ($100) of the Preferred Stock. The preferred stockholders are
not entitled to participate in the profits of the Company, beyond the fixed
dividends. The Company has issued three separate series of Preferred Stock.

SERIES A PREFERRED STOCK

On October 28, 1992, the Company issued to the North Dakota Future Fund
7,000 shares of Series A Preferred Stock at par value of $100 per share for a
total purchase price of $700,000. The Future Fund is the only holder of Series A
Preferred Stock. Under the Preferred Stock Purchase Agreement between the
Company and the North Dakota Future Fund, the Series A shares carry a six
percent (6%) per annum dividend accrued from the date of issuance and payable
upon declaration of the Board of Directors. On August 1, 1995, all accrued
dividends were due and payable, and annual dividends shall be paid on each
August 1st thereafter. On August 1, 1995, the Company paid to the Future Fund
accrued and unpaid dividends on the Series A Preferred Stock in a total amount
of $117,166.67. Dividends on the Preferred Stock have a preference over
dividends on the Equity Stock and issuance of any patronage dividends.

By Agreement dated August 26, 1995, the Company agreed to repurchase the
Series A Preferred Stock owned by the Future Fund. Under this Agreement, the
Company is obligated to repurchase 500 shares at the beginning of each quarter
of the Company's fiscal year, commencing on November 1, 1995, and concluding on
February 1, 1999. In addition, the Company must pay accrued and unpaid dividends
at six percent (6%) per annum with each installment payment. The Company, at its
discretion, may increase the number of shares repurchased at any quarterly
installment. The Company may postpone quarterly repurchases under either of the
following conditions:

i. The equity level of the Company falls below a level acceptable to
the St. Paul Bank for Cooperatives; or

ii. The Company submits a letter of explanation to the Future Fund
stating the business reason why the Company must postpone the scheduled
repurchase period.

SERIES B PREFERRED STOCK

There are 1,525 shares of Series B Preferred Stock issued and outstanding.
Holders of Series B Preferred Stock are entitled to receive, when and as
declared by the Board of Directors from the funds legally available, cash
dividends at the rate of $2.00 per share per annum computed from the issue date,
payable on such dates as determined by the Board of Directors. Dividends on the
Series B Preferred Stock shall not accumulate if not declared by the Board of
Directors. To date, the Board of Directors has not declared any dividends.

Since August 1, 1997, the holders of Series B Preferred Shares have been
entitled to require the Company to redeem all or any portion of such shares for
$100 per share plus any accumulated and unpaid dividends to the date fixed for
redemption.

37
<PAGE>
SERIES D CONVERTIBLE PREFERRED STOCK

As partial consideration for the acquisition of all of the shares of Primo
Piatto, Inc., the Company issued a total of 23,038 shares of Series D
Convertible Preferred Stock with certain registration rights. Each share of the
Series D Preferred Stock carries a non-cumulative dividend of 6% per annum,
calculated on the $100 par value of such stock. The non-cumulative dividend is
to be declared and paid each year prior to distribution by the Company of any
dividend or patronage distribution payable to the Company's members; the
dividend with respect to the Series D preferred shares also have priority over
dividends to be paid on the Series B Preferred Stock.

Each share of Series D Convertible Preferred Stock is convertible into ten
shares of the Company's Equity Stock; each holder may exercise his or her
conversion rights by providing written notice of the desire to convert such
Preferred Stock into Equity Stock at least 45 days prior to the end of the then
current marketing period. The conversion ratio with respect to the Series D
Convertible Preferred Stock is to be proportionately adjusted in the event of
certain stock splits and stock consolidations.

SALE AND TRANSFER OF SHARES

There is a very limited, private market for the Equity Stock and no market
for the Membership Stock. Any transfer of Equity Stock must be to a current
member or a grower eligible for membership in the Company. Membership Stock,
Equity Stock and Preferred Stock may not be transferred without the consent of
the Company's Board of Directors.

DISTRIBUTION OF ASSETS UPON DISSOLUTION

The Company's Articles of Association establish the following order and
priority for distribution of the Company's assets upon dissolution, each
category to be satisfied in full before any distribution is made to the next:
first, all debts and liabilities of the Company must be paid; second, the par
value of the Preferred Stock must be returned; third, the par value of Equity
Stock shall be paid; fourth, all patronage and other credits shall be paid;
fifth, the par value of Membership Stock shall be paid; sixth, remaining
property and assets of the Company are then to be distributed among the equity
shareholders in proportion to the Equity Stock held by each member.

AMENDMENTS TO BYLAWS

The Company's Bylaws may be amended by a majority of shareholders present at
any regular or special meeting at which a quorum is present. The notice of such
meeting must contain a summary of the proposed amendment. The Board of Directors
may also amend the Bylaws, except those provisions relating to their
compensation, but any such amendments are subject to confirmation by the
membership at the next regular or special membership meeting.

UNIT RETAINS AND ALLOCATED PATRONAGE

Under the terms of the Growers Agreement and the Company's Bylaws, the
Company is authorized to retain a portion of the payments otherwise due to its
members for their durum delivered to the Company. This is called a "unit
retain." In the event a member is terminated, but still has obligations to
deliver durum wheat pursuant to the terms of the Growers Agreement, the Company
cannot withhold any amounts as unit retains. The Company's Board of Directors
may set annually the unit retain to be applied to all members on a uniform
basis. Any such unit retain is considered membership equity, and may be redeemed
by the Company through future payments of cash to the members. Under IRS
guidelines, the Company has the option to treat the unit retains as taxable at
the cooperative level or to treat the unit retains as nontaxable by declaring
the unit retains as "qualified." Qualified unit retains are taxable to the
member in the member's tax year of notification. When a qualified per unit
retain is reimbursed or "revolved" in the form of a cash payment to the member,
the member reports no additional income,

38
<PAGE>
having already paid tax on the whole amount in the year of declaration. Unit
retains do not contain a minimum cash payment requirement to qualify for this
tax treatment.

The Company may pay patronage dividends in the form of qualified written
notices of allocation of patronage earnings to the members, based on each
member's patronage business with the Company. Under federal tax law, to
constitute a qualified written notice of allocation, the Company must pay to the
member at least 20% of the allocation in cash. However, the entire amount of the
qualified patronage allocation is taxable income to the member.

TAX TREATMENT

As a cooperative, Dakota Growers is not taxed on amounts withheld from its
members in the form of qualified unit retains, patronage dividends, or on the
amounts distributed to its members in the form of payments for durum wheat.
Consequently, such amounts are taxed only at the member level. However,
allocation by the Board of Directors of nonqualified unit retains and patronage
dividends are taxable to the cooperative when allocated. Upon revolvement of the
nonqualified unit retains and patronage dividends, the amount is deductible to
the Company and taxable at the member level.

Income derived by Dakota Growers from non-member business is not entitled to
the "single tax" benefit of Subchapter T and is taxed to the cooperative at
corporate income tax rates. For the fiscal years ended July 31, 1997 and 1998,
Dakota Growers experienced approximately a $357,000 loss and $577,000 loss,
respectively, from its non-member business.

PLAN OF DISTRIBUTION

The Company is offering and selling the Membership Stock and Equity Stock
without the assistance of any underwriter or agent. Instead, certain of the
Company's officers and directors will be responsible for completing the offer
and sale of the Membership Stock and Equity Stock. Such officers will not
receive any compensation or special remuneration for such activities, other than
their normal compensation as employees or directors of the Company. The offering
will be completed in three pools. Each member of the Company of record as of
December 1, 1998 will have the right to purchase one share of Equity Stock for
each two shares of Equity Stock owned as of that date. (If a member owns an odd
number of Shares, his right to purchase will be rounded up to the next whole
share of Equity Stock. The Company will not issue any fractional shares.) The
availability of Shares to members pursuant to that right is referred to as "Pool
1". Each member, at the time he or she subscribes for Shares in Pool 1, may also
subscribe for an unlimited number of additional Shares by completing the
appropriate subscription materials and paying the subscription price for the
additional Shares. To the extent that all shares of Equity Stock offered are not
sold in Pool 1, the remaining Shares will be classified as part of "Pool 2".
Each member who has requested shares of Equity Stock in addition to those
subscribed for in Pool 1 will be entitled to acquire Shares in Pool 2, if Shares
become part of Pool 2. To the extent that Pool 2 does not contain an adequate
number of shares of Equity Stock to satisfy all subscriptions, the available
Shares will be allocated pro rata, based on the aggregate number of Shares
available and the number of Shares requested by each member. Subscription
materials with respect to Shares in Pool 1 and Pool 2 must be postmarked no
later than January 6, 1999. If all shares of Equity Stock are not purchased in
Pool 1 or Pool 2, the remaining Shares will be classified as "Pool 3" Shares.
Shares of Equity Stock in Pool 3 may be purchased by qualified agricultural
producers who are not currently members of the Company. Subscription materials,
including payment of the subscription price for shares to be purchased in Pool
3, must be postmarked no later than February 28, 1999.

39
<PAGE>
The subscription price for Shares to be purchased in Pool 1 must be paid by
check payable to "Dakota Growers Pasta Company"; those amounts will, upon
acceptance of each subscription by the Company's Board of Directors, become the
assets of the Company and be immediately available for use in the Company's
operations. The subscription price for shares to be purchased in Pool 2 and Pool
3 must be paid by check payable to "Dakota Growers Pasta Company Escrow
Account". All proceeds received from subscribers in Pool 3 will be placed in
escrow with First American Bank West, Carrington, North Dakota.

The Company has the sole discretion to accept or reject any subscriptions
for Equity Stock. If the Company does not accept a subscription, the Company
will return any payment for shares not issued to the subscriber, without
interest or deduction. As described in "Description of Capital Stock," each
prospective purchaser of Membership Stock and Equity Stock must also satisfy the
requirements for membership in the Company contained in the Company's Articles
of Association and Bylaws.

LEGAL MATTERS

The validity of the shares of Membership Stock and Equity Stock offered
hereby and certain other matters will be passed upon for the Company by Doherty,
Rumble & Butler P.A., St. Paul, Minnesota.

EXPERTS

The financial statements of the Company as of July 31, 1997 and 1998,
appearing in this Prospectus and Registration Statement, have been audited by
Eide Bailly LLP, independent auditors, as set forth in their report thereon, and
are included in reliance upon the authority of such firm as experts in
accounting and auditing.

40
<PAGE>
DAKOTA GROWERS PASTA COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2

Consolidated Balance Sheet................................................................................. F-3

Consolidated Statements of Operations...................................................................... F-5

Consolidated Statements of Changes in Members' Investment.................................................. F-6

Consolidated Statements of Cash Flows...................................................................... F-7

Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
Dakota Growers Pasta Company
Carrington, North Dakota

We have audited the accompanying consolidated balance sheets of Dakota
Growers Pasta Company (a North Dakota Cooperative) as of July 31, 1998, and
1997, and the related consolidated statements of operations, changes in members'
investments and cash flows for the years ended July 31, 1998, 1997, and 1996.
These consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dakota
Growers Pasta Company as of July 31, 1998, and 1997, and the results of its
operations and its cash flows for the years ended July 31, 1998, 1997, and 1996,
in conformity with generally accepted accounting principles.

/s/ Eide Bailly LLP

Fargo, North Dakota
September 3, 1998

F-2
<PAGE>
DAKOTA GROWERS PASTA COMPANY

CONSOLIDATED BALANCE SHEETS

JULY 31, 1998 AND 1997

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................ $ 182 $ 5
---------- ---------
Receivables:
Trade accounts receivable, less allowance for cash discounts and doubtful accounts of
$174 and $218........................................................................ 12,404 8,048
Other receivable....................................................................... 742 239
---------- ---------
Total receivables.................................................................. 13,146 8,287
---------- ---------
Inventories.............................................................................. 21,935 8,700
---------- ---------
Prepaid expenses......................................................................... 3,915 536
---------- ---------
Total current assets............................................................... 39,178 17,528
---------- ---------
Property and equipment:
In service............................................................................. 89,270 51,450
Construction in process................................................................ 5,463 5,709
Accumulated depreciation and amortization.............................................. (13,596) (8,635)
---------- ---------
Net property and equipment......................................................... 81,137 48,524
---------- ---------
Investment in St. Paul Bank for Cooperatives............................................. 2,086 1,804
---------- ---------
Other assets............................................................................. 2,136 883
---------- ---------
Total assets....................................................................... $ 124,537 $ 68,739
---------- ---------
---------- ---------
</TABLE>

See notes to consolidated financial statements

F-3
<PAGE>
DAKOTA GROWERS PASTA COMPANY

CONSOLIDATED BALANCE SHEETS (CONTINUED)

JULY 31, 1998 AND 1997

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

LIABILITIES AND MEMBERS' INVESTMENT

<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Current liabilities:
Notes payable and current portion of long-term debt...................................... $ 4,033 $ 2,634
Accounts payable......................................................................... 5,748 3,432
Excess outstanding checks over cash on deposit........................................... 2,336 2,457
Accrued grower payments.................................................................. 1,354 1,116
Accrued liabilities...................................................................... 2,894 1,560
---------- ---------
Total current liabilities.......................................................... 16,365 11,199

Commitments and contingencies
Long-term debt, net of current portion..................................................... 66,056 27,131
Deferred income taxes...................................................................... 4,900 --
Other liabilities.......................................................................... 88 --
---------- ---------
Total liabilities.................................................................. 87,409 38,330
---------- ---------
Preferred stock:
Redeemable preferred stock:
Series A, 6% cumulative, $100 par value, issued 1,000 and 3,000 shares in 1998 and 1997,
respectively........................................................................... 100 300
Series B, 2% non-cumulative, $100 par value, issued 1,525 shares in 1998 and 1997........ 153 153
---------- ---------
Total preferred stock.............................................................. 253 453
---------- ---------
Members' investment:
Convertible preferred stock:
Series D, 6% non-cumulative, $100 par value, issued 23,038 shares in 1998.............. 2,304 --
Membership stock, $125 par value, issued 1,101 and 1,084 shares in 1998 and 1997,
respectively........................................................................... 137 135
Equity stock, $2.50 par value, issued 7,356,059 shares in 1998 and $3.85 par value,
issued 4,904,034 shares in 1997........................................................ 18,390 18,881
Additional paid in capital............................................................... 4,101 3,610
Accumulated allocated earnings........................................................... 2,914 413
Accumulated unallocated earnings......................................................... 9,029 6,917
---------- ---------
Total members' investment............................................................ 36,875 29,956
---------- ---------
Total liabilities and members' investment.......................................... $ 124,537 $ 68,739
---------- ---------
---------- ---------
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE>
DAKOTA GROWERS PASTA COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED JULY 31, 1998, 1997 AND 1996

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Net revenues (net of discounts and allowances of $10,709, $7,694, and $5,452 for
1998, 1997 and 1996, respectively)............................................ $ 119,621 $ 70,702 $ 50,494
Cost of product sold............................................................ 100,229 58,357 43,318
---------- --------- ---------
Gross proceeds.................................................................. 19,392 12,345 7,176
Marketing and general and administrative expenses............................... 6,754 3,542 2,532
---------- --------- ---------
Operating proceeds.............................................................. 12,638 8,803 4,644
Other income (expense):
Interest and other income..................................................... 63 39 101
Loss on retirement of property, plant and equipment........................... -- (104) --
Interest expense, net......................................................... (3,327) (1,812) (2,123)
---------- --------- ---------
Income before income taxes...................................................... 9,374 6,926 2,622
Expense of (benefit from) income taxes.......................................... -- -- 4
---------- --------- ---------
Net income from patronage and non-patronage business............................ 9,374 6,926 2,618
Dividends on preferred stock.................................................... 15 36 39
---------- --------- ---------
Earnings from patronage and non-patronage business available for members........ $ 9,359 $ 6,890 $ 2,579
---------- --------- ---------
---------- --------- ---------
Average equity shares outstanding............................................... 7,356 7,356 5,568
Earnings from patronage and non-patronage business per average equity share
outstanding:
Basic....................................................................... $ 1.27 $ .94 $ .46
---------- --------- ---------
---------- --------- ---------
Fully diluted............................................................... $ 1.24 $ .94 $ .46
---------- --------- ---------
---------- --------- ---------
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>
DAKOTA GROWERS PASTA COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' INVESTMENTS

YEARS ENDED JULY 31, 1998, 1997 AND 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
UNALLOCATED
ALLOCATED ACCUMULATED EARNING
SERIES D ADDITIONAL ACCUMULATED EARNINGS (DEFICIT)
PREFERRED MEMBERSHIP EQUITY PAID-IN ------------------------- ----------------------
STOCK STOCK STOCK CAPITAL QUALIFIED NON-QUALIFIED PATRONAGE NON-MEMBER TOTAL
--------- ---------- ------- ---------- --------- ------------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31,
1995.............. $ $122 $11,997 $ 782 $ $ $ 513 $ 83 $13,497
Preferred dividends
declared.......... (39) (39)
Net membership stock
issued
(redeemed)........ 13 13
Equity stock
issued............ 6,884 2,950 9,834
Subscriptions
forfeited......... 2 2
Expenses of stock
offering.......... (124) (124)
Net income (loss)
for the year ended
July 31, 1996..... 2,635 (17) 2,618
Patronage
allocations....... 935 (935)
Patronage paid...... (935) (935)
--------- ----- ------- ---------- --------- ------ --------- ----- -------
BALANCE, JULY 31,
1996.............. 135 18,881 3,610 0 2,213 27 24,866
Preferred dividends
declared.......... (36) (36)
Net income (loss)
for the year ended
July 31, 1997..... 7,283 (357) 6,926
Patronage
allocations....... 1,800 413 (2,213)
Patronage paid...... (1,800) (1,800)
--------- ----- ------- ---------- --------- ------ --------- ----- -------
BALANCE, JULY 31,
1997.............. 135 18,881 3,610 0 413 7,247 (330) 29,956
Preferred dividends
declared.......... (15) (15)
Preferred Series D
stock issued...... 2,304 2,304
Net membership stock
issued............ 2 2
Reallocation of
additional paid-in
capital due to
three for two
equity stock
credit and
revolution of
equity stock par
value from $3.85
to $2.50 per
share............. (491) 491
Net income (loss)
for the year ended
July 31, 1998..... 9,951 (577) 9,374
Patronage
allocations....... 4,746 2,501 (7,247)
Patronage paid...... (4,746) (4,746)
--------- ----- ------- ---------- --------- ------ --------- ----- -------
BALANCE, JULY 31,
1998.............. $2,304 $137 $18,390 $4,101 $ 0 $2,914 $ 9,936 $(907) $36,875
--------- ----- ------- ---------- --------- ------ --------- ----- -------
--------- ----- ------- ---------- --------- ------ --------- ----- -------
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>
DAKOTA GROWERS PASTA COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JULY 31, 1998, 1997 AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income........................................................................... $ 9,374 $ 6,926 $ 2,618
Add (deduct) non-cash items:
Depreciation and amortization...................................................... 4,849 3,138 2,430
Non-cash portion of patronage dividends............................................ (282) (51) (274)
Loss on retirement of property, plant and equipment................................ -- 164 --
Changes in assets and liabilities:
Trade receivables.................................................................. (990) (3,174) (1,404)
Other receivables.................................................................. (96) 84 288
Inventories........................................................................ (10,462) (1,963) (50)
Prepaid expenses................................................................... (3,078) (386) (120)
Other assets....................................................................... (433) -- --
Accounts payable................................................................... (1,413) 543 136
Excess outstanding checks over cash on deposit..................................... (121) 2,457 --
Grower payables.................................................................... 238 (729) 262
Other accrued liabilities.......................................................... (345) 1,026 (262)
--------- --------- ---------
Net cash provided by (used in) operating activities................................ (2,759) 8,035 3,624
--------- --------- ---------
Cash flows used in investing activities:
Purchases of property and equipment................................................ (9,389) (17,837) (1,489)
Acquisition of Primo net of cash acquired.......................................... (8,011) -- --
Payments for package design costs.................................................. (1,172) (263) (140)
--------- --------- ---------
Net cash used in investing activities.............................................. (18,572) (18,100) (1,629)
--------- --------- ---------
Cash flows provided by (used in) financing activities:
Net issuance of short-term debt.................................................... 7,608 2,200 --
Issuance of long-term debt......................................................... 19,618 8,700 --
Payments on long-term debt......................................................... (759) (67) (9,195)
Retirement of preferred stock...................................................... (200) (367) (150)
Dividends paid on preferred stock.................................................. (15) (44) (147)
Membership stock issued............................................................ 2 2 14
Membership stock retired........................................................... -- (2) (1)
Equity stock issued................................................................ -- -- 9,834
Subscriptions forfeited............................................................ -- -- 2
Expenses of stock offering......................................................... -- -- (124)
Patronage distributions............................................................ (4,746) (1,800) (935)
--------- --------- ---------
Net cash provided by (used in) financing activities.................................. 21,508 8,622 (702)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents................................. 177 (1,443) 1,293
Cash and cash equivalents, beginning of period....................................... 5 1,448 155
--------- --------- ---------
Cash and cash equivalents, end of period............................................. $ 182 $ 5 $ 1,448
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest......................................................................... $ 4,411 $ 2,120 $ 2,556
--------- --------- ---------
--------- --------- ---------
Income taxes..................................................................... $ -- $ -- $ (72)
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued dividends on Series A preferred stock...................................... $ -- $ -- $ 8
--------- --------- ---------
--------- --------- ---------
Acquisition of Primo Piatto, Inc.
Working capital over the cash.................................................... $ 1,439
Property and equipment, net...................................................... 27,721
Deferred income tax liability.................................................... (4,900)
Other long-term liabilities...................................................... (88)
Long-term debt assumed........................................................... (13,857)
Preferred stock issued........................................................... (2,304)
---------
Cash paid to acquire Primo Piatto, Inc........................................... $ 8,011
---------
---------
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION--

Dakota Growers Pasta Company ("the Company" or "the Cooperative") was formed
on December 16, 1991 and commenced operation on January 1, 1994. The Company is
organized as a farmers' cooperative for purposes of manufacturing food for human
consumption from durum and other grain products.

The ownership of membership stock, which signifies membership in the
Cooperative, is restricted to producers of agricultural products. The ownership
of equity stock is restricted to members of the Cooperative. Preferred stock may
be held by persons who are not members of the Cooperative.

Net proceeds are allocated to patrons who are members on the basis of their
participation in the cooperative. Equity requirements, as determined by the
Board of Directors, may be retained from amounts due to patrons and credited to
members' investments in the form of unit retains or undistributed allocated
patronage.

The Cooperative reserves the right to acquire any of its stock offered for
sale and the right to recall the stock of any stockholder. In the event this
right is exercised, the consideration paid for such stock shall be the fair
market value at that point in time.

The Company acquired 100% of the outstanding stock of Primo Piatto, Inc.
("Primo"), a Minnesota-based pasta manufacturer, on February 23, 1998. The
acquisition has been recorded using the purchase method of accounting.

PRINCIPLES OF CONSOLIDATION--

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in the preparation of the
consolidated financial statements.

ESTIMATES--

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

RECLASSIFICATIONS--

Certain amounts previously reported in the financial statements as of July
31, 1997 and for the years ended July 31, 1997 and 1996 have been reclassified
to facilitate comparability with the statements as of July 31, 1998 and for the
year ended July 31, 1998. Such reclassifications have no effect of the net
result of operations.

ADVERTISING--

Costs of advertising and promotions are expensed as incurred.

F-8
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS--

Cash and cash equivalents include cash on hand and in financial
institutions.

TRADE ACCOUNTS RECEIVABLE AND REVENUE--

The Cooperative grants credit to its customers located throughout the United
States. Trade accounts receivable are presented net of allowances for cash
discounts and doubtful accounts which totaled $174,000 and $218,000 as of July
31, 1998 and 1997, respectively.

Revenues are presented net of discounts and allowances of $10,709,000,
$7,694,000 and $5,452,000 for the years ended July 31, 1998, 1997 and 1996,
respectively. No customer represented greater than 10% of revenues for the years
ended July 31, 1998, 1997 and 1996.

INVENTORIES--

Finished goods, mill by-products and durum are valued at estimated net
realizable value. This is determined based on current selling price less any
remaining cost to finish, transport, warehouse and sell the product. Packaging
and ingredient inventories are valued at the lower of cost or market. Cost is
determined based on actual purchase cost on a FIFO basis, while market is
current replacement cost.

PROPERTY AND EQUIPMENT--

Property and equipment are stated at cost. Expenditures for renewals and
improvements that significantly add to the productive capacity or extend the
useful life of an asset are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred. When depreciable properties are
retired or sold, the cost and related accumulated depreciation are eliminated
from the accounts and the resultant gain or loss is reflected in income.

Interest capitalized totaled $186,000 and $307,000 for the years ended July
31, 1998 and 1997. Direct labor capitalized totaled $124,000 and $55,000 for the
years ended July 31, 1998 and 1997, respectively.

The initial acquisition of land is stated at the estimated fair value of the
land at acquisition. Subsequent land acquisitions are recorded at cost.

Depreciation is provided for over the estimated useful lives of the
individual assets using the straight-line method. The estimated useful lives
used in the computation of depreciation expense range from 3 to 39.5 years.
Depreciation expense totaled $4,497,000, $2,862,000 and $2,318,000 for the years
ended July 31, 1998, 1997 and 1996, respectively.

As a result of the purchase of Primo Piatto, Inc., the Company has an excess
of its cost of investment over the book value of net assets acquired from the
subsidiary This amount has been recorded as an increase in the value of property
and equipment and is being amortized over a 15 year period.

INVESTMENTS IN THE ST. PAUL BANK FOR COOPERATIVES (THE "BANK")--

Investments in the St. Paul Bank for Cooperatives are stated at cost, plus
unredeemed patronage refunds received in the form of capital stock. Patronage
refunds estimated to be received are shown as other receivables or other assets.

F-9
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCRUED GROWER PAYMENTS--

Accrued grower payments represent amounts due to growers for amounts
withheld from durum purchases pursuant to the growers agreement and delivery
policy.

INTEREST EXPENSE, NET--

The Company earns patronage refunds from the St. Paul Bank for Cooperatives
(the "Bank") based on its share of the net interest income earned by the Bank.
These patronage refunds received or estimated to be received are applied against
interest expense.

INCOME TAXES--

The Company is a non-exempt cooperative for federal income tax purposes.
Business conducted with its members constitutes patronage business as defined by
the Internal Revenue Code. The Company is subject to income taxes on earnings
from non-patronage sources. The provision for income taxes relates to the
results of operations from non-patronage business, state income taxes and
certain other permanent differences between financial and income tax reporting.
For the years ended July 31, 1998, 1997 and 1996, net income allocable to
patronage business totaled $9,951,000, $7,283,000 and $2,635,000, respectively.

MEMBERS' INVESTMENT--

The Cooperative is a nonprofit membership corporation, organized with
capital stock.

Accumulated unallocated earnings represents cumulative net income which has
not been allocated to members, while accumulated non-qualified allocated
earnings represents earnings which have been allocated to members based on
patronage but not distributed or qualified for income tax purposes.

The Company calculates income from patronage sources based on income derived
from bushels of durum delivered by members. Non-patronage income is derived from
the resale of wheat flour containing spring wheat flour purchased from
non-members, the resale of pasta purchased from non-members, the resale of
semolina purchased from non-members, rental income, interest income on invested
funds and any income taxes assessed on non-member business.

Cooperative organizations have 8 1/2 months after their fiscal year-end to
make patronage allocations in the form of written notices of allocation or cash.
As such, these allocations are normally reflected in the financial statements in
the period in which such allocations are declared by the Board of Directors.
Accordingly, the allocations for the fiscal year ended July 31, 1998 are not
reflected in the accompanying consolidated financial statements.

STOCK OPTIONS--

The Company has elected to follow Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees" and related interpretations
in accounting for its employee stock options. Under APB No. 25, no compensation
expense is recognized on the granting or exercise of stock options because the
exercise price is equal to or greater than the market price of the underlying
stock on the date of grant.

F-10
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 2. INVENTORIES

The major components of inventories as of July 31, 1998 and 1997 are as
follows (in thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Durum.................................................................... $ 1,091 $ 1,536
Finished goods and by-products........................................... 17,815 5,896
Packaging and ingredients................................................ 3,029 1,268
--------- ---------
$ 21,935 $ 8,700
--------- ---------
--------- ---------
</TABLE>

NOTE 3. PROPERTY AND EQUIPMENT

Details relative to property and equipment are as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Land and improvements.................................................. $ 2,156 $ 922
Buildings.............................................................. 14,754 12,285
Equipment.............................................................. 55,139 38,243
Excess of cost over the net book value of assets acquired from the
subsidiary........................................................... 17,221
---------- ---------
Property and equipment in service.................................. 89,270 51,450
Construction in process............................................ 5,463 5,709
Accumulated depreciation and amortization............................ (13,596) (8,635)
---------- ---------
$ 81,137 $ 48,524
---------- ---------
---------- ---------
</TABLE>

NOTE 4. OTHER ASSETS

The breakdown of other assets is as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Syndication and trademark costs--net......................................... $ 7 $ 22
Package design costs--net.................................................... 1,471 636
Estimated patronage refunds.................................................. 369 211
Debt issuance costs.......................................................... 238
Other........................................................................ 51 14
--------- ---------
$ 2,136 $ 883
--------- ---------
--------- ---------
</TABLE>

The syndication and trademark costs are recorded at cost and are being
amortized on a straight-line basis over five years beginning at the commencement
of operations on January 1, 1994.

The Company capitalizes the initial cost incurred in the development of
packaging designs for new customers and products. These costs are amortized over
five years. Minor revisions are expensed as incurred. If a product design is
discontinued or replaced prior to the end of the amortization period, the

F-11
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 4. OTHER ASSETS (CONTINUED)

remaining unamortized balance is charged to expense. Package design costs are
presented net of accumulated amortization totaling $682,000 and $345,000 as of
July 31, 1998 and 1997, respectively.

Effective August 1, 1996 the Company revised the period over which it
amortizes packaging printing plates and packaging design development costs from
15 years to 5 years. Such change in accounting estimate reduced net income for
the year ended July 31, 1997 by $285,000.

The debt issuance costs relate to expenditures incurred in obtaining
long-term debt. These costs are being amortized over the life of the related
debt.

NOTE 5. SHORT-TERM DEBT

The Cooperative has a $11.0 million seasonal line of credit with the St.
Paul Bank for Cooperatives, which is secured by property and equipment and
current assets of the company.

The seasonal line of credit has a variable interest rate and matures on
January 31, 1999. For the years ended July 31, 1998 and 1997, the balances were
$9,808,000 and $2,200,000 respectively. Due to the refinancing on August 11,
1998, described in Note 6, the seasonal line of credit is presented in the long-
term debt for comparative purposes.

Maximum borrowings, average borrowing levels and average interest rates for
short-term debt for the years ended July 31, 1997, 1996 and 1995 are as follows
(in thousands, except interest rates):

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Maximum borrowings.............................................. $ 10,823 $ 4,825 $ 4,700
Average borrowing levels........................................ 5,748 2,205 1,268
Average interest rates.......................................... 7.67% 7.57% 8.89%
</TABLE>

F-12
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 6. LONG-TERM DEBT

Information regarding long-term debt at July 31, 1998 and 1997 is as follows
(in thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Term loans due to St. Paul Bank for Cooperatives due in quarterly
installments of $685,000 plus interest through December 31, 2004,
interest at 8.14% to 10.22%, with first lien on substantially all
property and equipment................................................ $ 17,724 $ 18,409
Construction Term loan due to St. Paul Bank for Cooperatives due in
quarterly installments of $625,000 plus interest through December 31,
2004, interest at 8.14% to 8.76%, collateralized by property and
equipment............................................................. 14,175 8,700
Term loan due to St. Paul Bank for Cooperatives due in quarterly
installments of $1,000,000 plus interest through September 30, 2005,
variable interest, currently 8.14%, collateralized by property and
equipment............................................................. 16,000 --
Term loan from St. Paul Bank for Cooperatives due in annual principal
installments of $1,200,000 through September 30, 2008, interest at
5.71%, collateralized by property and equipment....................... 12,000 --
Seasonal loan, variable interest, currently 7.69%....................... 9,808 2,200
Term loan from the City of Carrington, due in monthly installments
through 2003, interest rate of 4%..................................... 282 336
Convertible debt from Northern Plains Cooperative, due in annual
installments through 2003, non-interest bearing....................... 50 60
Convertible debt from Dakota Central Telecommunications, due in annual
installments through 2003, non-interest bearing....................... 50 60
--------- ---------
Total long-term debt................................................ 70,089 29,765
Current maturities.................................................. (4,033) (2,634)
--------- ---------
NET LONG-TERM DEBT.................................................. $ 66,056 $ 27,131
--------- ---------
--------- ---------
</TABLE>

Aggregate future maturities required on long-term debt are as follows (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDING JULY 31,
- -----------------------------------------------------------------------------------
<S> <C>
1999............................................................................... $ 4,033
2000............................................................................... 4,448
2001............................................................................... 6,521
2002............................................................................... 6,523
2003............................................................................... 6,503
Thereafter......................................................................... 42,061
---------
$ 70,089
---------
---------
</TABLE>

F-13
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 6. LONG-TERM DEBT (CONTINUED)
On August 11, 1998, the Cooperative issued $18.0 million 7.04% Senior
Secured Guaranteed Notes, Series A, due August 1, 2008 and $9.0 million 7.14%
Senior Secured Guaranteed Notes, Series B, due August 1, 2010. Proceeds from the
note issuance was used to retire: the $16.0 million St. Paul Bank for
Cooperatives term loan due September 30, 2005; prepay $175,000 of the St. Paul
Bank Construction Term Loan due December 31, 2004; and prepay $4.7 million of
the St. Paul Bank Term Loan due December 31, 2004. The remaining $6.1 million
was used to reduce the Cooperative's seasonal St. Paul Bank operating loan. The
Cooperative incurred debt issuance costs of approximately $238,000 which will be
amortized over the life of the notes. Future minimum principal payments required
as a result of the issuance have been reflected in the above amounts.

The Company has a $12,000,000 letter of credit commitment with the St. Paul
Bank for Cooperatives. The letter of credit commitment is subject to a
commitment fee of .625% on an annualized basis and expires December 31, 2008.
Advances on the letter of credit commitment are payable on demand.

The Company has a loan agreement with the Bank containing certain covenants
related to, among other matters, the maintenance of certain working capital,
ownership and debt service ratios. As of July 31, 1998 and 1997, the Company has
met these loan covenants.

The Company has convertible debt related to two non-interest bearing notes
with annual installments of $10,000 each. Per the loan agreements, from March 1,
1995 through February 1, 2003, the Company shall have the privilege of
converting the unpaid balance of indebtedness into series B preferred stock. The
holders of the debt do not have the option to convert this debt.

The Company incurred $4,137,000, $2,187,000, and $2,485,000 of interest on
long and short-term debt and other obligations in fiscal years 1998, 1997 and
1996, respectively. $186,000 and $307,000 of interest was capitalized in 1998
and 1997, respectively. Patronage income from the Bank of $624,000, $68,000, and
$362,000 has been netted for the years ended July 31, 1998, 1997 and 1996,
respectively.

NOTE 7. MEMBERS' INVESTMENT

On July 24, 1997, the Board of Directors voted to split the outstanding
equity stock on a three for two basis effective August 1, 1997. The Board of
Directors also voted to adjust the par value per share of equity stock to $2.50.
Each member of record as of August 31, 1997 received three shares of equity
stock, par value $2.50, in exchange for two shares, par value $3.85. At July 31,
1998 the Company had issued and outstanding 1,101 shares of membership stock and
7,356,059 shares of equity stock.

Under the terms of the Cooperative's bylaws, the Cooperative's net income,
determined in accordance with generally accepted accounting principles
consistently applied, shall be distributed annually based on the volume of
patronage business (bushels of durum delivered, which approximates one bushel of
durum per equity share). The distribution can be in the form of cash or credits
to each member-producer's patronage credit account which has been established on
the books of the cooperative. For presentation purposes only, the company has
calculated net income per share by dividing earnings from patronage and
non-patronage business available for members (net income less preferred
dividends) by the weighted average number of equity shares outstanding during
the period. The Company has reflected the effect of the three for two stock
split effective August 1, 1997 as if it were in effect during the years ended
July 31, 1997 and 1996.

F-14
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 7. MEMBERS' INVESTMENT (CONTINUED)
A qualified patronage allocation of $4,745,258 ($1.00 per bushel) and a
non-qualified patronage allocation of $2,500,751 ($.527 per bushel) representing
the allocation of the 1997 fiscal earnings, was authorized by the Board of
Directors in October 1997. $4,745,258 of the qualified allocation was
distributed in November 1997. A patronage allocation of $1,800,000, $.50 per
bushel, representing the allocation of 1996 fiscal earnings, was authorized by
the Board of Directors in October 1996 and was distributed in November 1996.
Additionally, $413,000 ($.115 per bushel) was allocated to the members but not
distributed or qualified for income tax purposes.

NOTE 8. PREFERRED STOCK

The Company is authorized to issue 50,000 shares of preferred stock with a
par value of $100 per share. As of July 31, 1998 the Company has 25,563 issued
and outstanding shares of preferred stock in three series. Preferred Stock
Series A and B are redeemable pursuant to agreement and Preferred Stock Series D
is convertible.

Each share of preferred series A stock entitles its holder to receive a 6%
annual dividend accrued from the date of issuance and payable upon declaration
by the Board of Directors.

Pursuant to an agreement with the holder of series A preferred stock, on
August 1, 1995, the Company paid all accrued dividends and, quarterly beginning
November 1, 1995, shall redeem 500 shares at par value of $100 per share, plus
accrued dividends. The Company, at its discretion, may increase the number of
shares redeemed at any quarterly installment. The Company may postpone quarterly
redemptions if the equity level falls below an acceptable level set by the Bank,
shortages in working capital or for unforeseen short-term business
opportunities.

As of July 31, 1998 the Company has 1,000 shares of preferred series A stock
outstanding.

Each share of preferred series B stock entitles its holder to receive an
annual cash dividend at the rate of $2.00 per share, when and as declared by the
Board of Directors. Dividends on the preferred series B stock shall not
accumulate if not declared by the board.

Two thousand two hundred fifty (2,250) shares of the preferred series B
stock may be redeemed, in whole or in part, at the option of the Company at any
time after August 1, 1997, at the redemption price of $100 per share, plus any
declared but unpaid dividends. On or after August 1, 1997, the stockholder may
require the Company to redeem all or a said portion of the shares for $100 per
share, plus any declared but unpaid dividends, if both (1) the equity exclusive
of the preferred series A and B stock is 40% or greater of the total capital as
of July 31, 1997, and (2) the Company made dividend payments on the equity stock
for the year ended July 31, 1997.

Four hundred fifty (450) shares of the preferred series B stock are governed
by a repurchase agreement obligating the Company to repurchase their shares as
of September 1, 1998, at the par value of $100 per share, plus any declared but
unpaid dividends. These shares may be redeemed by the Cooperative on or after
August 1, 1997, in agreement with the terms stated above.

One shareholder of preferred series B stock, representing one thousand one
hundred seventy-five (1,175) shares, notified the Company of its desire to
exercise its redemption rights available on August 1, 1997. By vote of the Board
of Directors, this redemption was made on July 31, 1997.

F-15
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 8. PREFERRED STOCK (CONTINUED)
As of July 31, 1998 the Company has 1,525 shares of preferred series B stock
outstanding.

Each share of preferred series D stock shall receive payment of
non-cumulative dividends at the rate of 6% per annum, calculated on the par
value of the preferred stock. The preferred series D stock dividends shall be
declared and paid each year prior to any patronage dividend or other dividend or
distributions being paid to the Company's membership. The preferred series D
stock dividends shall also be paid prior to any dividends paid on preferred
series B stock.

Each share of preferred series D stock is convertible into ten shares of the
Company's equity stock upon written notice to the Company at least 45 days prior
to the end of the then current trimester marketing period. The conversion ratio
shall be proportionately adjusted at any time the outstanding shares of equity
stock are increased or decreased without payment by or to the Company or the
Company's members.

As of July 31, 1998, 23,038 shares of preferred stock series D are
outstanding.

NOTE 9. EMPLOYEE BENEFIT PLANS

Dakota Growers Pasta Company and Primo Piatto, Inc. have implemented 401(k)
plans covering employees who have met age and service requirements. The plans
cover employees who have reached 21 years of age and completed six-months of
service as defined in the plan document. The amount to be contributed annually
by the companies is discretionary. Contributions totaled $135,000, $31,000 and
$28,000 for the years ended July 31, 1998, 1997 and 1996, respectively.

Primo Piatto, Inc. is also required to contribute to a multi-employer
pension plan covering certain hourly employees subject to a collective
bargaining agreement. Contributions for the period from February 23, 1998 to
July 31, 1998 totaled $49,000.

NOTE 10. INCOME TAXES

The Company is a non-exempt cooperative as defined by Section 1381(a)(2) of
the Internal Revenue Code. Accordingly, net margins from business done with
member patrons which are allocated and paid as prescribed in Section 1382 of the
code (hereafter referred to as "qualified") will be taxable to the members and
not to the Cooperative. Net margins and member allocations are determined on the
basis of accounting used for financial reporting purposes. To the extent that
net margins are not qualified as stated above or arise from business done with
non-members, the Cooperative shall have taxable income subject to corporate
income tax rates.

Tax expense in 1996 represents taxes paid to various states pursuant to
their respective tax provisions.

Certain temporary differences exist between financial statement and income
tax reporting purposes that also create a difference in the amount of patronage
income determined on either basis. As these differences are ultimately allocated
to the members through patronage allocations, no deferred taxes are provided for
these temporary differences.

A deferred income tax liability of $4.9 million was recorded in 1998 related
to timing differences associated with the excess of cost over the net book value
of the Primo Piatto, Inc. assets acquired during

F-16
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 10. INCOME TAXES (CONTINUED)
1998. The timing difference totaled $12.3 million. The deferred tax liability
was calculated using an income tax rate of 40%.

NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is generally defined as the amount
at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced liquidation sale. Quoted market prices
are generally not available for the Company's financial instruments.
Accordingly, fair values are based on judgements regarding anticipated cash
flows, future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates involve uncertainties and matters of judgement, and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.

The carrying amount of cash and cash equivalents, receivables, payables,
short-term debt and other current liabilities approximates fair value because of
the short maturity and/or frequent repricing of those instruments.

The Company believes it is not practical to estimate the fair value of the
securities of non-subsidiary cooperatives without incurring excessive costs
because there is no established market for these securities and it is
inappropriate to estimate future cash flows which are largely dependent on
future patronage earnings of the non-subsidiary cooperatives.

Based upon current borrowing rates with similar maturities, the fair value
of the long-term debt approximates the carrying value as of July 31, 1998.

NOTE 12. OPERATING LEASES

The Company leases various warehouse facilities in North Dakota, as well as
various items of equipment, primarily forklifts and computers.

Future obligations for the above leases for the fiscal years ended July 31
are as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDING JULY 31,
- -------------------------------------------------------------------------------------
<S> <C>
1999................................................................................. $ 694
2000................................................................................. 656
2001................................................................................. 573
2002................................................................................. 344
2003................................................................................. 7
---------
$ 2,274
---------
---------
</TABLE>

Lease expense totaled $798,000, $404,000, and $304,000 for the years ended
July 31, 1998, 1997 and 1996, respectively.

F-17
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 13. COMMITMENTS AND CONTINGENCIES

During fiscal 1998, the Company entered agreements for an estimated $10.5
million mill expansion project. At July 31, 1998, $881,000 has been expended.
The Company also entered agreements for an ERP software replacement project. The
total project cost, including installation costs, is estimated at $1.3 million,
of which $622,000 has been expended in the year ended July 31, 1998.

In July 1997 the Company entered into agreements to purchase an additional
pasta line. The total estimated project cost, including mill enhancements and
packaging equipment, is expected to aggregate $5.5 million, of which $4.0
million has been expended through July 31, 1998.

On January 1, 1996, the Company became self-insured with respect to certain
employee medical costs. Terms of the plan include a stop-loss provision which
limits the Company's liability to $20,000 per claim with an aggregate stop-loss
maximum totaling approximately $466,000 for calendar year 1998. Through July 31,
1998 the Company has charged $253,000 against its 1998 maximum liability.

The Company forward contracts for a certain portion of its future durum
wheat requirements. At July 31, 1998, the Company has outstanding commitments
for grain purchases totaling $7,549,000.

In accordance with the Stock Purchase Agreement, each of the previous Primo
shareholders have the right to elect to receive a loan from Dakota Growers Pasta
Company for the payment of taxes attributable to the preferred stock portion of
the purchase price. The Company may loan in the aggregate the lesser of the
computed tax liability or $900,000. Each note will bear interest at a rate of 6%
payable annually, with all outstanding principal and interest being due three
years from the original date of the loan. Each note shall be secured by
preferred stock shares.

The Cooperative is subject to various lawsuits and claims which arise in the
ordinary course of its business. While the results of such litigation and claims
cannot be predicted with certainty, management believes the disposition of all
such proceedings, individually or in aggregate, should not have a material
adverse effect on the Company's financial position, results of operations or
cash flows.

NOTE 14. STOCK OPTION PLANS

On January 31, 1997 the Company's Compensation Committee of the Board of
Directors (the "Compensation Committee") adopted the Dakota Growers Incentive
Stock Option Plan (the "Plan"). The purpose of the Plan is to provide benefits
to participants in the form of additional compensation for services which have
been or will be rendered as an inducement for continuing as employees of the
Company. The Plan was ratified by membership at its annual meeting on January
10, 1998.

The Plan is administered by the Compensation Committee. The Compensation
Committee or the Board of Directors have the power to determine the key
management employees of the Company to receive options and the number of shares
to be optioned to each of the employees.

Options granted under the Plan are for the purchase of preferred stock at
fair market value, convertible into equity stock at the option of the employee,
under the applicable conversion ratio. The maximum number of preferred shares
which may be issued pursuant to options granted under the Plan is fifteen
thousand (15,000).

The conversion ratio is 24 shares of Equity Stock for each share of
Preferred Stock. The conversion ratio shall be proportionately adjusted if the
Company increases the outstanding shares of equity stock

F-18
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 14. STOCK OPTION PLANS (CONTINUED)
without the payment of consideration by the members for such additional shares
(e.g. stock split, stock dividend or other action).

5,728 options have been granted under this Plan and must be exercised within
ten years from the date such options are granted. Options are exercisable only
by the employee during the employee's lifetime. In the event of the employee's
termination with the Company, all exercisable options may be exercised within 90
days of the termination date. If not exercised, such options lapse. The employee
must sell or dispose of the preferred stock, or equity stock upon conversion,
within 15 months from the date of employment termination.

If the preferred stock is changed into another kind of capital stock or debt
as a result of any capital reorganization, reclassification or any merger or
consolidation with another entity in which the Company is not the surviving
entity, the option entitles the employee to acquire upon exercise the kind and
number of shares of stock or other securities or property to which the employee
would have been entitled if he had held the preferred stock issuable upon the
exercise of this option immediately prior to such capital reorganization,
reclassification, merger or consolidation.

As of July 31, 1998 the Company had outstanding options to purchase 5,728
preferred shares. As of July 31, 1998, 3,809 options are exercisable,
convertible into 91,416 shares of equity stock. No options have been exercised
as of July 31, 1998.

The Company did not record any compensation expense during the year ended
July 31, 1998 and July 31, 1997 related to the issuance or exercise of stock
options.

The pro forma application of Statement of Financial Accounting Standard
(SFAS) No. 123 "Accounting for Stock-Based Compensation" would not have a
material impact on net income and earnings per share.

Assumptions used to estimate the fair values of the options:

<TABLE>
<S> <C>
Risk-free interest rate........................................... 6.54%
Expected life..................................................... 10 years
Expected dividends................................................ None
</TABLE>

NOTE 15. ACQUISITION

On February 23, 1998, Dakota Growers Pasta Company acquired 100% of the
outstanding stock of Primo Piatto, Inc., a Minnesota-based pasta manufacturer,
for cash and convertible preferred stock. Primo's physical assets consist of two
pasta production facilities and a distribution center located in the
Minneapolis, Minnesota metropolitan area. The Company has accounted for the
acquisition using the purchase method. The statement of operations for the year
ended July 31, 1998 contains the operating results of Primo for the period
February 23, 1998 through July 31, 1998.

The shares of Primo were acquired for consideration consisting of a cash
payment of $11,000,000 and the issuance of 23,038 shares ($100 par) of Dakota
Grower's convertible preferred stock. 3,864 shares of the convertible preferred
stock will be held in escrow pending the resolution of certain outstanding
issues.

F-19
<PAGE>
DAKOTA GROWERS PASTA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996

NOTE 15. ACQUISITION (CONTINUED)
Assets and liabilities purchased were as follows:

<TABLE>
<S> <C>
Cash.............................................................. $ 2,989
Accounts receivable............................................... 3,773
Inventory......................................................... 2,772
Prepaid expenses.................................................. 301
P P & E (Historic cost)........................................... 10,500
Excess of cost over the net book value of assets acquired......... 17,221
Less liabilities assumed........................................ (24,252)
---------
Total consideration........................................... $ 13,304
---------
---------
</TABLE>

The following summary presents the pro forma consolidated results of
operations of the Company as if the business combination had occurred on August
1, 1996 (in thousands except earnings per share):

<TABLE>
<CAPTION>
YEARS ENDING JULY 31,
---------------------
1998 1997
---------- ---------
<S> <C> <C>
Revenues............................................................... $ 125,535 $ 70,702
Earnings from patronage and non-patronage business..................... 9,560 6,926
Earnings from patronage and non-patronage business per average equity
share outstanding:
Basic.............................................................. $ 1.30 $ .94
Fully diluted...................................................... 1.26 .94
</TABLE>

The above pro forma results do not necessarily represent results which would
have occurred if the business combination had taken place at the date assumed
above.

F-20
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR AN OFFER TO PURCHASE ANY
SECURITIES OTHER THAN THE MEMBERSHIP STOCK AND EQUITY STOCK TO WHICH IT RELATES
OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary........................................ 3
Risk Factors................................... 7
Use of Proceeds................................ 11
Payments to Members............................ 11
Capitalization................................. 13
Selected Financial Data........................ 14
Management's Discussion and Analysis of Results
of Operation and Financial Condition......... 15
Business....................................... 20
Property and Processing Facilities............. 27
Management..................................... 28
Related Party Transactions..................... 33
Principal Shareholders......................... 34
Description of Capital Stock................... 35
Plan of Distribution........................... 39
Legal Matters.................................. 40
Experts........................................ 40
Index to Financial Statements.................. F-1
</TABLE>

500 SHARES OF
MEMBERSHIP STOCK
$125.00 PER SHARE

3,679,000 SHARES OF
EQUITY STOCK
$ PER SHARE

DAKOTA GROWERS PASTA COMPANY

---------------------

PROSPECTUS

---------------------

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 13,042
Accounting fees and expenses...................................... 20,000
Legal fees and expenses........................................... 100,000
Printing expenses................................................. 12,000
Blue Sky fees and expenses........................................ 500
Miscellaneous..................................................... 4,458
---------
Total......................................................... $ 150,000
---------
---------
</TABLE>

Except for the SEC registration fees, all of the foregoing expenses have
been estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Bylaws provide for the indemnification of certain corporate
agents, including the Company's directors, officers and employees. The
indemnification provided to the Company's directors, officers and employees
includes coverage for amounts actually and reasonably incurred by such
individuals in connection with proceedings arising by reason of each such
individual's status as an officer, director or employee. The amount for which
the director, employee or officer is to be indemnified includes expenses,
including attorney's fees, judgments, fines and amounts paid in settlement of
claims.

The Registrant also carries a directors' and officers' liability insurance
policy in the amount of $2,000,000.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In early 1998, the Company issued a total of 23,038 shares of its Series D
Convertible Preferred Stock as partial consideration for the acquisition of all
of the issued and outstanding shares of common stock of Primo Piatto, Inc. The
Series D Convertible Preferred Stock was issued to 11 persons in that
transaction, which was completed in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

See Exhibit Index

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registrations statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range

II-1
<PAGE>
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set for in the "Calculation of Registration Fee" table in
the effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding( is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(5) for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(6) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be initial bona fide offering thereof.

II-2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement (File No.
333-65071) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Carrington, State of North Dakota on October 21,
1998.

<TABLE>
<S> <C> <C>
DAKOTA GROWERS PASTA COMPANY

By: /s/ TIMOTHY J. DODD
-----------------------------------------
Timothy J. Dodd
PRESIDENT
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on October 21, 1998.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<C> <S>
/s/ TIMOTHY J. DODD President and General
- ------------------------------ Manager (Principal
Timothy J. Dodd Executive Officer)

/s/ THOMAS P. FRIEZEN Vice President--Finance
- ------------------------------ (Principal Financial and
Thomas P. Friezen Accounting Officer)

/s/ JOHN S. DALRYMPLE III
- ------------------------------ Director
John S. Dalrymple III

/s/ JOHN D. RICE
- ------------------------------ Director
John D. Rice

/s/ ALLYN K. HART
- ------------------------------ Director
Allyn K. Hart

/s/ JAMES F. LINK
- ------------------------------ Director
James F. Link

/s/ MICHAEL E. WARNER
- ------------------------------ Director
Michael E. Warner
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<C> <S>
/s/ EUGENE J. NICHOLAS
- ------------------------------ Director
Eugene J. Nicholas

/s/ CURT R. TRULSON
- ------------------------------ Director
Curt R. Trulson

/s/ JEFFREY O. TOPP
- ------------------------------ Director
Jeffrey O. Topp

/s/ ROGER A. KENNER
- ------------------------------ Director
Roger A. Kenner
</TABLE>

II-4
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------------- -------------------------------------------------------
<C> <S>
(2) 3.1 Certified Articles of Incorporation of Dakota Growers
Pasta Company

(2) 3.2 Bylaws of Dakota Growers Pasta Company

4.1 Note Purchase Agreement dated July 15, 1998

5.1 Opinion of Legal Counsel

*10.1 Form of Subscription Agreement (Pool 1--Current Members
Only) between the Company and purchasers in this
offering who are members of the Company

*10.2 Form of Subscription Agreement (Pool 2--Current
Members) between the Company and purchasers in this
offering who are members of the Company

*10.3 Form of Subscription Agreement (Pool 3--New Members)
between the Company and purchasers in this offering
who are not members of the Company

(2) 10.4 Form of Growers Agreement between the Company and
members of the Company

+10.5 Loan Agreement in the aggregate amount of
$72,849,007.38 dated July 23, 1998 between the
Company and St. Paul Bank for Cooperatives and
related promissory notes

(1) 10.6 Series A Preferred Stock Purchase Agreement dated
October 28, 1992 between the Company and the State of
North Dakota acting by and through North Dakota
Future Fund, Inc., including Amendment to Preferred
Stock Purchase Between Dakota Growers Pasta Company
and North Dakota Future Fund dated August 26, 1995

(1) 10.7 Loan Agreement in the aggregate amount of $100,000
dated February 5, 1993 between the Company and Dakota
Central Telecommunications Cooperative

(1) 10.8 Promissory Note in the principal amount of $100,000
dated February 5, 1993 between the Company and Dakota
Central Telecommunications Cooperative

(1) 10.9 Loan Agreement in the aggregate amount of $100,000
dated February 5, 1993 between the Company and
Tri-County Electric Cooperative, Inc.

(1) 10.10 Promissory Note in the principal amount of $100,000
dated February 5, 1993 between the Company and
Tri-County Electric Cooperative, Inc.

(3) 10.11 Indenture of Lease between RLN Leasing, Inc. and Dakota
Growers Pasta Company, dated May 1, 1997

(1) 10.12 Sample Broker Agreement between Dakota Growers Pasta
Company and Sinco, Inc. dated May 1, 1995

(3) 10.13 Agreement between Dakota Growers Pasta Company and JP
Foodservice, Inc. dated March 7, 1997

(3) 10.14 Consulting Agreement between Dakota Growers Pasta
Company and Peninsula Trading Company, Inc. dated
October 15, 1997

10.15 Escrow Agreement between the Company and First American
Bank West dated October , 1998

(4) 10.17 Incentive Stock Plan

23.1 Consent of Independent Auditors

23.2 Consent of Legal Counsel (incorporated in Exhibit 5.1)

*24.1 Power of Attorney
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------------- -------------------------------------------------------
<C> <S>
*27 Financial Data Schedule
</TABLE>

- ------------------------

* Previously filed

+ Portions of the Exhibit have been deleted from the publicly filed document
and have been filed separately with the Commission pursuant to a request for
confidential treatment.

(1) Incorporated by reference from the Company's Registration Statement on Form
S-1, File No. 33-99834, declared effective January 26, 1996.

(2) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended January 31, 1997.

(3) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1997, as amended on September 30, 1998.
Portions of Exhibits 10.11 and 10.13 have been deleted from the publicly
filed documents and have been filed separately with the Commission pursuant
to a request for confidential treatment.

(4) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1998.

II-6

<PAGE>

[COMPOSITE CONFORMED COPY]

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

DAKOTA GROWERS PASTA COMPANY

$18,000,000 7.04% Senior Secured Guaranteed Notes, Series A
due August 1, 2008

AND

$9,000,000 7.14% Senior Secured Guaranteed Notes, Series B,
due August 1, 2010

--------------

NOTE PURCHASE AGREEMENT

-------------

Dated as of July 15, 1998

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>

TABLE OF CONTENTS

(Not a part of the Agreement)
<TABLE>
<CAPTION>

SECTION HEADING PAGE
<S> <C>
SECTION 1. AUTHORIZATION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 2. SALE AND PURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . . 1

SECTION 3. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

SECTION 4. CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . . 2

Section 4.1. Representations and Warranties . . . . . . . . . . . . . . . 2
Section 4.2. Performance; No Default. . . . . . . . . . . . . . . . . . . 2
Section 4.3. Compliance Certificates. . . . . . . . . . . . . . . . . . . 3
Section 4.4. Opinions of Counsel. . . . . . . . . . . . . . . . . . . . . 3
Section 4.5. Purchase Permitted by Applicable Law, Etc. . . . . . . . . . 3
Section 4.6. Sale of Other Notes. . . . . . . . . . . . . . . . . . . . . 3
Section 4.7. Payment of Special Counsel Fees. . . . . . . . . . . . . . . 4
Section 4.8. Private Placement Number . . . . . . . . . . . . . . . . . . 4
Section 4.9. Changes in Corporate Structure . . . . . . . . . . . . . . . 4
Section 4.10. Certain Agreements . . . . . . . . . . . . . . . . . . . . . 4
Section 4.11. Security Documents . . . . . . . . . . . . . . . . . . . . . 4
Section 4.12. Filing and Recording . . . . . . . . . . . . . . . . . . . . 4
Section 4.13. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.14. Proceedings and Documents. . . . . . . . . . . . . . . . . . 4

SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . 5

Section 5.1. Organization; Power and Authority. . . . . . . . . . . . . . 5
Section 5.2. Authorization, Etc . . . . . . . . . . . . . . . . . . . . . 5
Section 5.3. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.4. Organization and Ownership of Shares of Subsidiaries . . . . 6
Section 5.5. Financial Statements . . . . . . . . . . . . . . . . . . . . 6
Section 5.6. Compliance with Laws, Other Instruments, Etc . . . . . . . . 7
Section 5.7. Governmental Authorizations, Etc . . . . . . . . . . . . . . 7
Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. . 7
Section 5.9. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.10. Title to Property; Leases. . . . . . . . . . . . . . . . . . 8
Section 5.11. Licenses, Permits, Etc . . . . . . . . . . . . . . . . . . . 8
Section 5.12. Compliance with ERISA. . . . . . . . . . . . . . . . . . . . 8
Section 5.13. Private Offering by the Company. . . . . . . . . . . . . . . 9
Section 5.14. Use of Proceeds; Margin Regulations. . . . . . . . . . . . . 9

-2-
<PAGE>

Section 5.15. Existing Debt; Future Liens. . . . . . . . . . . . . . . . . 10
Section 5.16. Foreign Assets Control Regulations, Etc. . . . . . . . . . . 10
Section 5.17. Status under Certain Statutes. . . . . . . . . . . . . . . . 10
Section 5.18. Environmental Matters. . . . . . . . . . . . . . . . . . . . 10
Section 5.19. Pari Passu Ranking . . . . . . . . . . . . . . . . . . . . . 11

SECTION 6. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . . 11

Section 6.1. Purchase for Investment. . . . . . . . . . . . . . . . . . . 11
Section 6.2. Source of Funds. . . . . . . . . . . . . . . . . . . . . . . 12

SECTION 7. INFORMATION AS TO COMPANY. . . . . . . . . . . . . . . . . . . . . . 13

Section 7.1. Financial and Business Information . . . . . . . . . . . . . 13
Section 7.2. Officer's Certificate. . . . . . . . . . . . . . . . . . . . 16
Section 7.3. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . 16

SECTION 8. PREPAYMENT OF THE NOTES. . . . . . . . . . . . . . . . . . . . . . . 17

Section 8.1. Required Prepayments . . . . . . . . . . . . . . . . . . . . 17
Section 8.2. Optional Prepayments with Make-Whole Amount. . . . . . . . . 18
Section 8.3. Change in Control. . . . . . . . . . . . . . . . . . . . . . 18
Section 8.4. Allocation of Partial Prepayments. . . . . . . . . . . . . . 20
Section 8.5. Maturity; Surrender, Etc . . . . . . . . . . . . . . . . . . 20
Section 8.6. Purchase of Notes. . . . . . . . . . . . . . . . . . . . . . 20
Section 8.7. Make-Whole Amount. . . . . . . . . . . . . . . . . . . . . . 21

SECTION 9. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 22

Section 9.1. Compliance with Law. . . . . . . . . . . . . . . . . . . . . 22
Section 9.2. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.3. Maintenance of Properties. . . . . . . . . . . . . . . . . . 23
Section 9.4. Payment of Taxes and Claims. . . . . . . . . . . . . . . . . 23
Section 9.5. Corporate Existence, Etc . . . . . . . . . . . . . . . . . . 23

SECTION 10. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 23

Section 10.1. Transactions with Affiliates . . . . . . . . . . . . . . . . 23
Section 10.3. Consolidated Net Worth . . . . . . . . . . . . . . . . . . . 24
Section 10.4. Certain Ratios . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.5. Sale of Assets, Etc. . . . . . . . . . . . . . . . . . . . . 25
Section 10.6. Disposal of Ownership of a Subsidiary. . . . . . . . . . . . 25
Section 10.7. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.8. Nature of Business . . . . . . . . . . . . . . . . . . . . . 28
Section 10.9. Distributions. . . . . . . . . . . . . . . . . . . . . . . . 28

SECTION 11. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . 29

-3-
<PAGE>

SECTION 12. REMEDIES ON DEFAULT, ETC . . . . . . . . . . . . . . . . . . . . . . 31

Section 12.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12.2. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . 32
Section 12.3. Rescission . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc. . . . . . 32

SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. . . . . . . . . . . . 33

Section 13.1. Registration of Notes. . . . . . . . . . . . . . . . . . . . 33
Section 13.2. Transfer and Exchange of Notes . . . . . . . . . . . . . . . 33
Section 13.3. Replacement of Notes . . . . . . . . . . . . . . . . . . . . 33

SECTION 14. PAYMENTS ON NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . 34

Section 14.1. Place of Payment . . . . . . . . . . . . . . . . . . . . . . 34
Section 14.2. Home Office Payment. . . . . . . . . . . . . . . . . . . . . 34

SECTION 15. EXPENSES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Section 15.1. Transaction Expenses . . . . . . . . . . . . . . . . . . . . 34
Section 15.2. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 35

SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT . . . . 35

SECTION 17. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . 35

Section 17.1. Requirements . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 17.2. Solicitation of Holders of Notes . . . . . . . . . . . . . . 36
Section 17.3. Binding Effect, Etc. . . . . . . . . . . . . . . . . . . . . 36
Section 17.4. Notes Held by Company, Etc . . . . . . . . . . . . . . . . . 36

SECTION 18. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

SECTION 19. REPRODUCTION OF DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . 37

SECTION 20. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 38

SECTION 21. SUBSTITUTION OF PURCHASER. . . . . . . . . . . . . . . . . . . . . . 39

SECTION 22. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Section 22.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . 39

-4-
<PAGE>

Section 22.2. Payments Due on Non-Business Days. . . . . . . . . . . . . . 39
Section 22.3. Severability . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 22.4. Construction . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 22.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 22.6. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 40
Section 22.7. Additional Debt. . . . . . . . . . . . . . . . . . . . . . . 40

Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

-5-
<PAGE>

SCHEDULE A -- INFORMATION RELATING TO PURCHASERS

SCHEDULE B -- DEFINED TERMS

SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock

SCHEDULE 5.5 -- Financial Statements

SCHEDULE 5.15 -- Existing Debt

EXHIBIT 1-A -- Form of 7.04% Senior Secured Guaranteed Note, Series A, due
August 1, 2008

EXHIBIT 1-B -- Form of 7.14% Senior Secured Guaranteed Note, Series B, due
August 1, 2010

EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company

EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers

EXHIBIT GA -- Form of Guaranty Agreement

</TABLE>

-6-
<PAGE>

DAKOTA GROWERS PASTA COMPANY
ONE PASTA AVENUE
CARRINGTON, NORTH DAKOTA 58421

7.04% Senior Secured Guaranteed Notes, Series A, due August 1, 2008
and
7.14% Senior Secured Guaranteed Notes, Series B, due August 1, 2010

Dated as of
July 15, 1998

TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:

LADIES AND GENTLEMEN:

DAKOTA GROWERS PASTA COMPANY, a North Dakota corporation (the "COMPANY"),
agrees with you as follows:

SECTION 1. AUTHORIZATION OF NOTES.

The Company will authorize the issue and sale of (i) $18,000,000 aggregate
principal amount of its 7.04% Senior Secured Guaranteed Notes, Series A, due
August 1, 2008 (the "SERIES A NOTES") and (ii) $9,000,000 aggregate principal
amount of its 7.14% Senior Secured Guaranteed Notes, Series B, due August 1,
2010 (the "SERIES B NOTES" and, together with the Series A Notes, the "NOTES,"
such term to include any such notes issued in substitution for the appropriate
series pursuant to Section 13 of this Agreement or the Other Agreements (as
hereinafter defined)). The Series A Notes shall be substantially in the form
set out in Exhibit 1-A and the Series B Notes shall be substantially in the form
of Exhibit 1-B, in each case, with such changes therefrom, if any, as may be
approved by you and the Company. Certain capitalized terms used in this
Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit"
are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.

SECTION 2. SALE AND PURCHASE OF NOTES.

Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes of the series and in the principal amount
specified opposite your name in Schedule A at the purchase price of 100% of the
principal amount thereof. Contemporaneously with entering into this Agreement,
the Company is entering into separate Note Purchase Agreements (the "OTHER
AGREEMENTS") identical with this Agreement with each of the other purchasers
named in Schedule A (the "OTHER PURCHASERS"), providing for the sale at such
Closing to each of the Other Purchasers of Notes in the principal amount and of
the series specified opposite its name in

-7-
<PAGE>

Schedule A. Your obligation hereunder, and the obligations of the Other
Purchasers under the Other Agreements, are several and not joint obligations,
and you shall have no obligation under any Other Agreement and no liability to
any Person for the performance or nonperformance by any Other Purchaser
thereunder.

The obligations of the Company under the Notes and this Agreement will be
guaranteed pursuant to the Guaranty Agreement and will be secured pursuant to
the Collateral Documents.

SECTION 3. CLOSING.

The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603, at 10:00 A.M. Chicago time, at a closing (the
"CLOSING") on August 7, 1998 or on such other Business Day thereafter on or
prior to August 14, 1998 as may be agreed upon by the Company and you and the
Other Purchasers. At the Closing the Company will deliver to you the Notes of
the appropriate series to be purchased by you in the form of a single Note (or
such greater number of Notes in denominations of at least $100,000 as you may
request) dated the date of the Closing and registered in your name (or in the
name of your nominee), against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to
account number 380313 at St. Paul Bank for Cooperatives, ABA number 296090471.
If at the Closing the Company shall fail to tender such Notes to you as provided
above in this Section 3, or any of the conditions specified in Section 4 shall
not have been fulfilled to your satisfaction, you shall, at your election, be
relieved of all further obligations under this Agreement, without thereby
waiving any rights you may have by reason of such failure or such
nonfulfillment.

SECTION 4. CONDITIONS TO CLOSING.

Your obligation to purchase and pay for the Notes to be sold to you at the
Closing is subject to the fulfillment to your satisfaction, prior to or at the
Closing, of the following conditions:

SECTION 4.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Guarantor in the Financing Agreements shall be
correct when made and at the time of the Closing.

SECTION 4.2. PERFORMANCE; NO DEFAULT. The Company and the Guarantor shall
have performed and complied with all agreements and conditions contained in the
Financing Agreements required to be performed or complied with by either of them
prior to or at the Closing, and after giving effect to the issue and sale of the
Notes (and the application of the proceeds thereof as contemplated by
Section 5.14), no Default or Event of Default shall have occurred and be
continuing. Neither the Company nor any Subsidiary shall have entered into any
transaction since the date of the Memorandum that would have been prohibited by
Sections 10.1, 10.3 or 10.5 hereof had such Sections applied since such date.

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<PAGE>

SECTION 4.3. COMPLIANCE CERTIFICATES.

(a) OFFICER'S CERTIFICATE. The Company and the Guarantor shall have
delivered to you an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been
fulfilled.

(b) SECRETARY'S CERTIFICATE. The Company and the Guarantor shall have
delivered to you certificates certifying as to the resolutions attached thereto
and other corporate proceedings relating to the authorization, execution and
delivery of the Notes and the Financing Agreements.

SECTION 4.4. OPINIONS OF COUNSEL. You shall have received opinions in
form and substance satisfactory to you, dated the date of the Closing (a) from
Fabian Noack, Esq., counsel for the Company and the Guarantor, covering the
matters set forth in Exhibit 4.4(a) and covering such other matters incident to
the transactions contemplated hereby as you or your counsel may reasonably
request (and the Company hereby instructs such counsel to deliver such opinion
to you) and (b) from Chapman and Cutler, your special counsel in connection with
such transactions, substantially in the form set forth in Exhibit 4.4(b) and
covering such other matters incident to such transactions as you may reasonably
request.

SECTION 4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of
the Closing your purchase of Notes shall (a) be permitted by the laws and
regulations of each jurisdiction to which you are subject, without recourse to
provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting
limited investments by insurance companies without restriction as to the
character of the particular investment, (b) not violate any applicable law or
regulation (including, without limitation, Regulation U, T or X of the Board of
Governors of the Federal Reserve System) and (c) not subject you to any tax,
penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
you, you shall have received an Officer's Certificate certifying as to such
matters of fact as you may reasonably specify to enable you to determine whether
such purchase is so permitted.

SECTION 4.6. SALE OF OTHER NOTES. Contemporaneously with the Closing, the
Company shall sell to the Other Purchasers, and the Other Purchasers shall
purchase, the Notes to be purchased by them at the Closing as specified in
Schedule A.

SECTION 4.7. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the
provisions of Section 15.1, the Company shall have paid on or before the Closing
the fees, charges and disbursements of your special counsel referred to in
Section 4.4 to the extent reflected in a statement of such counsel rendered to
the Company at least one Business Day prior to the Closing.

SECTION 4.8. PRIVATE PLACEMENT NUMBER. A Private Placement Number issued
by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities
Valuation Office of the National Association of Insurance Commissioners) shall
have been obtained for the Notes.

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<PAGE>

SECTION 4.9. CHANGES IN CORPORATE STRUCTURE. Neither the Company nor the
Guarantor shall have changed its respective jurisdiction of incorporation or
been a party to any merger or consolidation nor shall have succeeded to all or
any substantial part of the liabilities of any other entity, at any time
following the date of the most recent financial statements referred to in
Schedule 5.5.

SECTION 4.10. CERTAIN AGREEMENTS. The Intercreditor Agreement and the Loan
Agreement shall be in form and substance satisfactory to you and your special
counsel, shall have been duly executed and delivered by the parties thereto and
shall be in full force and effect and you shall have received true, correct and
complete copies of each thereof.

SECTION 4.11. SECURITY DOCUMENTS. The Security Documents shall be in form
and substance satisfactory to you and your special counsel, shall have been duly
executed and delivered by the parties thereto and shall be in full force and
effect and you shall have received true, correct and complete copies of each
thereof.

SECTION 4.12. FILING AND RECORDING. The Security Documents (and/or
financing statements or similar notices thereof if and to the extent permitted
by applicable law) shall have been recorded or filed for record in such public
offices as may be deemed necessary or appropriate by you or your special counsel
in order to perfect the Liens and security interest granted or conveyed thereby.

SECTION 4.13. TITLE INSURANCE. The Company shall have delivered to you
endorsements to the existing title insurance policies or new title policies
covering the real property subject to a lien pursuant to the Security Documents
insuring the lien of the Mortgages and adding the collateral agent for the
holders of the Notes as an additional insured to the extent of the obligations
under the Notes; PROVIDED, HOWEVER, that the amounts of such insurance shall not
be increased in any event.

SECTION 4.14. PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received all such counterpart originals or certified or other copies
of such documents as you or they may reasonably request.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to you that:

SECTION 5.1. ORGANIZATION; POWER AND AUTHORITY. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each of
the Company and the Guarantor has the corporate

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<PAGE>

power and authority to own or hold under lease the properties it purports to own
or hold under lease, to transact the business it transacts and proposes to
transact, to execute and deliver the Financing Agreements to which it is a party
and to perform the provisions hereof and thereof.

SECTION 5.2. AUTHORIZATION, ETC. The Financing Agreements have been duly
authorized by all necessary corporate action on the part of the Company and the
Guarantor, and each Financing Agreement constitutes a legal, valid and binding
obligation of the Company or Guarantor which is a party thereto enforceable
against the Company or the Guarantor, as the case may be, in accordance with its
terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

SECTION 5.3. DISCLOSURE. The Company, through its agents, SPP Hambro &
Co., LLC and St. Paul Bank for Cooperatives, has delivered to you and each Other
Purchaser a copy of a Confidential Direct Placement Memorandum, dated June, 1998
(the "MEMORANDUM"), relating to the transactions contemplated hereby. The
Memorandum fairly describes, in all material respects, the general nature of the
business and principal properties of the Company and its Subsidiaries. This
Agreement, the Memorandum, the documents, certificates or other writings
delivered to you by or on behalf of the Company in connection with the
transactions contemplated hereby and the financial statements listed in
Schedule 5.5, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made. Since July 31, 1997, there has been no change in the financial
condition, operations, business, properties or prospects of the Company or any
Subsidiary except changes that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect. There is no fact
known to the Company that could reasonably be expected to have a Material
Adverse Effect that has not been set forth herein or in the Memorandum or in the
other documents, certificates and other writings delivered to you by or on
behalf of the Company specifically for use in connection with the transactions
contemplated hereby.

SECTION 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES.
(a) Schedule 5.4 contains (except as noted therein) complete and correct lists
of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its organization and the percentage of shares of
each class of its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary.

(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company
and its Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by the Company or another Subsidiary free and clear of any Lien
(except as otherwise disclosed in Schedule 5.4).

(c) Each Subsidiary identified in Schedule 5.4 is a corporation or other
legal entity duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good

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<PAGE>

standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Each such Subsidiary has the
corporate or other power and authority to own or hold under lease the properties
it purports to own or hold under lease and to transact the business it transacts
and proposes to transact.

(d) No Subsidiary is a party to, or otherwise subject to, any legal
restriction or any agreement (other than this Agreement, the agreements listed
on Schedule 5.4 and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits or
make any other similar distributions of profits to the Company or any of its
Subsidiaries that owns outstanding shares of capital stock or similar equity
interests of such Subsidiary.

SECTION 5.5. FINANCIAL STATEMENTS. The Company has delivered to each
Purchaser copies of the financial statements of the Company and its Subsidiaries
listed on Schedule 5.5. All of said financial statements (including in each case
the related schedules and notes) fairly present in all material respects the
consolidated financial position of the Company and its Subsidiaries as of the
respective dates specified in such financial statements and the consolidated
results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments).

SECTION 5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution,
delivery and performance by the Company and the Guarantor of the Financing
Agreements to which each is a party will not (a) contravene, result in any
breach of, or constitute a default under, or result in the creation of any Lien
in respect of any property of the Company, the Guarantor or any Subsidiary
under, any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, corporate charter or by-laws, or any other agreement or
instrument to which the Company, the Guarantor or any Subsidiary is bound or by
which the Company, the Guarantor or any Subsidiary or any of their respective
properties may be bound or affected, (b) conflict with or result in a breach of
any of the terms, conditions or provisions of any order, judgment, decree, or
ruling of any court, arbitrator or Governmental Authority applicable to the
Company, the Guarantor or any Subsidiary or (c) violate any provision of any
statute or other rule or regulation of any Governmental Authority applicable to
the Company, the Guarantor or any Subsidiary.

SECTION 5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company or the Guarantor of the Financing Agreements.

SECTION 5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) There are no actions, suits or proceedings pending or, to the knowledge of
the Company, threatened against or affecting the Company or any

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<PAGE>

Subsidiary or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

(b) Neither the Company nor any Subsidiary is in default under any term
of any agreement or instrument to which it is a party or by which it is bound,
or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

SECTION 5.9. TAXES. The Company and its Subsidiaries have filed all tax
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (a) the amount
of which is not individually or in the aggregate Material or (b) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company knows of no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate. The Company
and its Subsidiaries have never been audited by the Internal Revenue Service nor
has the statute of limitations with regards to tax liabilities run for any
fiscal year of the Company and its Subsidiaries.

SECTION 5.10. TITLE TO PROPERTY; LEASES. The Company and its Subsidiaries
have good and sufficient title to their respective properties that individually
or in the aggregate are Material, including all such properties reflected in the
most recent audited balance sheet referred to in Section 5.5 or purported to
have been acquired by the Company or any Subsidiary after said date (except as
sold or otherwise disposed of in the ordinary course of business), in each case
free and clear of Liens prohibited by this Agreement. All leases that
individually or in the aggregate are Material are valid and subsisting and are
in full force and effect in all material respects.

SECTION 5.11. LICENSES, PERMITS, ETC. (a) The Company and its Subsidiaries
own or possess all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict with the
rights of others;

(b) to the best knowledge of the Company, no product of the Company or
any Subsidiary infringes in any Material respect any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or other
right owned by any other Person; and

(c) to the best knowledge of the Company, there is no Material violation
by any Person of any right of the Company or any of its Subsidiaries with
respect to any patent,

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<PAGE>

SECTION 5.12. COMPLIANCE WITH ERISA. (a) The Company and each ERISA
Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not resulted
in and could not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and no
event, transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or any
ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.

(b) The present value of the aggregate benefit liabilities under each of
the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities. The term "BENEFIT LIABILITIES" has the
meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE" and
"PRESENT VALUE" have the meanings specified in section 3 of ERISA.

(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.

(d) The expected post-retirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Company and its Subsidiaries is not Material.

(e) The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction prohibited by
section 406(a) of ERISA or in connection with which a tax could be imposed
pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the
Company in the first sentence of this Section 5.12(e) is made in reliance upon
and subject to the accuracy of your representation in Section 6.2 as to the
sources of the funds used to pay the purchase price of the Notes to be purchased
by you.

SECTION 5.13. PRIVATE OFFERING BY THE COMPANY. Neither the Company, the
Guarantor nor anyone acting on its behalf has offered the Notes, the Guaranty
Agreement or any similar securities for sale to, or solicited any offer to buy
any of the same from, or otherwise approached or negotiated in respect thereof
with, any Person other than you, the Other Purchasers and not

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<PAGE>

more than forty-four (44) other Institutional Investors, each of which has been
offered the Notes at a private sale for investment. Neither the Company nor
anyone acting on its behalf has taken, or will take, any action that would
subject the issuance or sale of the Notes or the Guaranty Agreement to the
registration requirements of Section 5 of the Securities Act.

SECTION 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply
the proceeds of the sale of the Notes to reduce long-term and short-term
borrowings and for general corporate proposes. No part of the proceeds from the
sale of the Notes hereunder will be used, directly or indirectly, for the
purpose of buying or carrying any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System (12 CFR
221), or for the purpose of buying or carrying or trading in any securities
under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 1% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention that
margin stock will constitute more than 1% of the value of such assets. As used
in this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING"
shall have the meanings assigned to them in said Regulation U.

SECTION 5.15. EXISTING DEBT; FUTURE LIENS. (a) Except as described
therein, Schedule 5.15 sets forth a complete and correct list of all outstanding
Debt of the Company and its Subsidiaries as of July 30, 1998, since which date
there has been no Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Debt of the Company or its
Subsidiaries. Neither the Company nor any Subsidiary is in default and no
waiver of default is currently in effect, in the payment of any principal or
interest on any Debt of the Company or such Subsidiary and no event or condition
exists with respect to any Debt of the Company or any Subsidiary that would
permit (or that with notice or the lapse of time, or both, would permit) one or
more Persons to cause such Debt to become due and payable before its stated
maturity or before its regularly scheduled dates of payment.

(b) Except as disclosed in Schedule 5.15, neither the Company nor any
Subsidiary has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether now owned
or hereafter acquired, to be subject to a Lien not permitted by Section 10.A.

SECTION 5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of
the Notes by the Company hereunder nor its use of the proceeds thereof will
violate the Trading with the Enemy Act, as amended, or any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) or any enabling legislation or executive order
relating thereto.

SECTION 5.17. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any
Subsidiary is an "INVESTMENT COMPANY" registered or required to be registered
under the Investment Company Act of 1940, as amended, or is subject to
regulation under the Public Utility Holding

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<PAGE>

Company Act of 1935, as amended, the ICC Termination Act of 1995, as amended, or
the Federal Power Act, as amended.

SECTION 5.18. ENVIRONMENTAL MATTERS. Neither the Company nor any
Subsidiary has knowledge of any claim or has received any notice of any claim,
and no proceeding has been instituted raising any claim against the Company or
any of its Subsidiaries or any of their respective real properties now or
formerly owned, leased or operated by any of them or other assets, alleging any
damage to the environment or violation of any Environmental Laws, except, in
each case, such as could not reasonably be expected to result in a Material
Adverse Effect. Except as otherwise disclosed to you in writing:

(a) neither the Company nor any Subsidiary has knowledge of any
facts which would give rise to any claim, public or private, of violation
of Environmental Laws or damage to the environment emanating from,
occurring on or in any way related to real properties now or formerly
owned, leased or operated by any of them or to other assets or their use,
except, in each case, such as could not reasonably be expected to result in
a Material Adverse Effect;

(b) neither the Company nor any of its Subsidiaries has stored
any Hazardous Materials on real properties now or formerly owned, leased or
operated by any of them or has disposed of any Hazardous Materials in a
manner contrary to any Environmental Laws in each case in any manner that
could reasonably be expected to result in a Material Adverse Effect; and

(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance with
applicable Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect.

SECTION 5.19. PARI PASSU RANKING. The obligations of the Company and of
the Guarantor under the respective Financing Agreements to which each is a
party, and the Liens of the Collateral Documents constitute senior obligations
of the Company and of the Guarantor which rank at least PARI PASSU, without
preference or priority, with the obligations of the Company and the Guarantor
under the Loan Agreement and any guaranty thereof and security therefor. All
collateral securing the Loan Agreement and any guaranty thereof also secures the
Financing Agreements.

SECTION 6. REPRESENTATIONS OF THE PURCHASER.

SECTION 6.1. PURCHASE FOR INVESTMENT. You represent that you are
purchasing the Notes for your own account or for one or more separate accounts
maintained by you or for the account of one or more pension or trust funds and
not with a view to the distribution thereof, PROVIDED that the disposition of
your or their property shall at all times be within your or their control. You
understand that the Notes have not been registered under the Securities Act and
may be resold only if registered pursuant to the provisions of the Securities
Act or if an exemption

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<PAGE>

from registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes. You, either alone or with the assistance of
your professional advisors, have such knowledge and experience in financial and
business matters that you are capable of evaluating the merits and risks of the
prospective investment in the Notes. You qualify as an "accredited investor" as
that term is defined and interpreted by applicable federal securities law. You
have obtained, to the extent you deem necessary, your own professional advice to
determine the suitability of your investment in the Notes in light of your
investment needs and applicable legal requirements. You have been given access
to information regarding the Company and have utilized such access to your
satisfaction for the purpose of obtaining information regarding the Company,
have received copies of the Company's Memorandum and all exhibits thereto, and
have either attended or been given the reasonable opportunity to attend a
meeting with representatives of the Company for the purpose of asking questions
of, and receiving answers from, such representatives concerning the Company.

SECTION 6.2. SOURCE OF FUNDS. You represent that at least one of the
following statements is an accurate representation as to each source of funds (a
"SOURCE") to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder:

(a) the Source is an "insurance company general account" within
the meaning of Department of Labor Prohibited Transaction Exemption ("PTE")
95-60 (issued July 12, 1995) and there is no employee benefit plan,
treating as a single plan, all plans maintained by the same employer or
employee organization, with respect to which the amount of the general
account reserves and liabilities for all contracts held by or on behalf of
such plan, exceeds ten percent (10%) of the total reserves and liabilities
of such general account (exclusive of separate account liabilities) plus
surplus, as set forth in the NAIC Annual Statement filed with your state of
domicile; or

(b) the Source is either (i) an insurance company "pooled
separate account," within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning of the
PTE 91-38 (issued July 152, 1991) and, except as you have disclosed to the
Company in writing pursuant to this paragraph (b), no employee benefit plan
or group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or

(c) the Source constitutes assets of an "investment fund" (within
the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer or by an
affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of
such employer or by the same employee organization and managed by such
QPAM, exceed 20% of the total client assets managed by such QPAM, the
conditions of Part l(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a person controlling or

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<PAGE>

controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
Company and (i) the identity of such QPAM and (ii) the names of all
employee benefit plans whose assets are included in such investment fund
have been disclosed to the Company in writing pursuant to this paragraph
(c); or

(d) the Source is a governmental plan; or

(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee benefit
plans, each of which has been identified to the Company in writing pursuant
to this paragraph (e); or

(f) the Source does not include or is deemed not to include under
ERISA and the regulations thereunder, assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA.

If you or any subsequent transferee of the Notes indicates that your or
such transferee are relying on any representation contained in paragraph (b),
(c) or (e) above, the Company shall deliver on the date of Closing and on the
date of any applicable transfer a certificate, which shall either state that
(i) it is neither a party in interest nor a "disqualified person" (as defined in
Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended), with
respect to any plan identified pursuant to paragraphs (b) or (e) above, or
(ii) with respect to any plan, identified pursuant to paragraph (c) above,
neither it nor any "affiliate" (as defined in Section V(c) of the QPAM
Exemption) has at such time, and during the immediately preceding one year,
exercised the authority to appoint or terminate said QPAM as manager of any plan
identified in writing pursuant to paragraph (c) above or to negotiate the terms
of said QPAM's management agreement on behalf of any such identified plan;
provided that if the Company cannot deliver the certificate required by this
paragraph with respect to any disclosure made pursuant to paragraph (b), (c) or
(e) above, such purchase or transfer shall not occur. As used in this
Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL PLAN", "PARTY IN
INTEREST" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to
such terms in Section 3 of ERISA.

SECTION 7. INFORMATION AS TO COMPANY.

SECTION 7.1. FINANCIAL AND BUSINESS INFORMATION. The Company shall
deliver to each holder of Notes that is an Institutional Investor:

(a) QUARTERLY STATEMENTS -- within 45 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies
of:

(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and

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(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with such
quarter,

setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly financial
statements generally, and certified by a Senior Financial Officer as fairly
presenting, in all material respects, the financial position of the
companies being reported on and their results of operations and cash flows,
subject to changes resulting from year-end adjustments, PROVIDED that
delivery within the time period specified above of copies of the Company's
Quarterly Report on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this Section 7.1(a);

(b) ANNUAL STATEMENTS -- within 90 days after the end of each
fiscal year of the Company duplicate copies of,

(i) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and

(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,

setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP,
and accompanied by

(A) an opinion thereon of independent certified
public accountants of recognized national standing (which may
include Eide Bailly LLP), which opinion shall state that
financial statements present fairly, in all material
respects, the financial position of the companies being
reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such
financial statements has been made in accordance with
generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the
circumstances, and

(B) a certificate of such accountants stating that
they have reviewed this Agreement and stating further
whether, in making their audit, they have become aware of any
condition or event that then constitutes a Default or an
Event of Default and, if they are aware that any such
condition or event then exists, specifying the nature and
period of the existence thereof (it being understood that
such accountants shall not be liable, directly or indirectly,
for any failure to obtain knowledge of any Default or Event
of Default unless such accountants should have obtained

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<PAGE>

knowledge thereof in making an audit in accordance with
generally accepted auditing standards or did not make such an
audit);

PROVIDED that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together with
the Company's annual report to shareholders, if any, prepared pursuant to
Rule 14a-3 under the Exchange Act) prepared in accordance with the
requirements therefor and filed with the Securities and Exchange
Commission, together with the accountant's certificate described in clause
(B) above, shall be deemed to satisfy the requirements of this
Section 7.1(b);

(c) SEC AND OTHER REPORTS -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary to public securities
holders generally, and (ii) each regular or periodic report, each
registration statement (without exhibits except as expressly requested by
such holder), and each prospectus and all amendments thereto filed by the
Company or any Subsidiary with the Securities and Exchange Commission and
of all press releases and other statements made available generally by the
Company or any Subsidiary to the public concerning developments that are
Material;

(d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any
event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has given
any notice or taken any action with respect to a claimed default hereunder
or that any Person has given any notice or taken any action with respect to
a claimed default of the type referred to in Section 11(f), a written
notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto;

(e) ERISA MATTERS -- promptly, and in any event within five days
after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Company or an ERISA Affiliate proposes to take with respect
thereto:

(i) with respect to any Plan, any reportable event, as
defined in section 4043(b) of ERISA and the regulations thereunder,
for which notice thereof has not been waived pursuant to such
regulations as in effect on the date hereof; or

(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of
a trustee to administer, any Plan, or the receipt by the Company or
any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such Multiemployer
Plan; or

(iii) any event, transaction or condition that could result
in the incurrence of any liability by the Company or any ERISA
Affiliate pursuant to Title

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<PAGE>

I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, or in the imposition of any Lien
on any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty
or excise tax provisions, if such liability or Lien, taken together
with any other such liabilities or Liens then existing, could
reasonably be expected to have a Material Adverse Effect;

(f) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any
event within 30 days of receipt thereof, copies of any notice to the
Company or any Subsidiary from any Federal or state Governmental Authority
relating to any order, ruling, statute or other law or regulation that
could reasonably be expected to have a Material Adverse Effect; and

(g) REQUESTED INFORMATION -- with reasonable promptness, such
other data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries or relating to the ability of the Company to perform its
obligations hereunder and under the Financing Agreements as from time to
time may be reasonably requested by any such holder of Notes.

SECTION 7.2. OFFICER'S CERTIFICATE. Each set of financial statements
delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer
setting forth:

(a) COVENANT COMPLIANCE -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 10.2 through Section 10.7
hereof, inclusive, during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such
Section, where applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be, permissible under the
terms of such Sections, and the calculation of the amount, ratio or
percentage then in existence); and

(b) EVENT OF DEFAULT -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and conditions
of the Company and its Subsidiaries from the beginning of the quarterly or
annual period covered by the statements then being furnished to the date of
the certificate and that such review shall not have disclosed the existence
during such period of any condition or event that constitutes a Default or
an Event of Default or, if any such condition or event existed or exists
(including, without limitation, any such event or condition resulting from
the failure of the Company or any Subsidiary to comply with any
Environmental Law), specifying the nature and period of existence thereof
and what action the Company shall have taken or proposes to take with
respect thereto.

SECTION 7.3. INSPECTION. The Company shall permit the representatives of
each holder of Notes that is an Institutional Investor:

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<PAGE>

(a) NO DEFAULT -- if no Default or Event of Default then exists,
at the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to discuss
the affairs, finances and accounts of the Company and its Subsidiaries with
the Company's officers, and (with the consent of the Company, which consent
will not be unreasonably withheld) its independent public accountants, and
(with the consent of the Company, which consent will not be unreasonably
withheld) to visit the other offices and properties of the Company and each
Subsidiary, all at such reasonable times and as often as may be reasonably
requested in writing; and

(b) DEFAULT -- if a Default or Event of Default then exists, at
the expense of the Company, to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants (and by this provision the Company authorizes said accountants
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries), all at such times and as often as may be requested.

SECTION 8. PREPAYMENT OF THE NOTES.

SECTION 8.1. REQUIRED PREPAYMENTS. (a) On August 1, 2002 and on each
August 1 thereafter to and including August 1, 2007 the Company will prepay
$2,571,000 principal amount (or such lesser principal amount as shall then be
outstanding) of the Series A Notes at par and without payment of the Make-Whole
Amount or any premium, PROVIDED that upon any partial prepayment of the Series A
Notes pursuant to Section 8.2 or 8.3 or purchase of the Series A Notes permitted
by Section 8.5, or application of casualty or condemnation proceeds pursuant to
Section 5 of the Intercreditor Agreement, the principal amount of each required
prepayment of the Notes becoming due under this Section 8.1 on and after the
date of such prepayment or purchase shall be reduced in the same proportion as
the aggregate unpaid principal amount of the Notes is reduced as a result of
such prepayment or purchase. Each prepayment pursuant to this Section 8.1(a)
shall be allocated among all Series A Notes at the time outstanding in
proportion, as nearby as practicable, to the respective unpaid principal amounts
thereof.

(b) On August 1, 2002 and on each August 1 thereafter to and including
August 1, 2009 the Company will prepay $1,000,000 principal amount (or such
lesser principal amount as shall then be outstanding) of the Series B Notes at
par and without payment of the Make-Whole Amount or any premium, PROVIDED that
upon any partial prepayment of the Series B Notes pursuant to Section 8.2 or 8.3
or purchase of the Series B Notes permitted by Section 8.5, or application of
casualty or condemnation proceeds pursuant to Section 5 of the Intercreditor
Agreement, the principal amount of each required prepayment of the Series B
Notes becoming due under this Section 8.1 on and after the date of such
prepayment or purchase shall be reduced in the same proportion as the aggregate
unpaid principal amount of the Series B Notes is reduced as a result of such
prepayment or purchase. Each prepayment pursuant to this Section 8.1(b) shall
be

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<PAGE>

allocated among all Series B Notes at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof.

SECTION 8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company
may, at its option, upon notice as provided below, prepay at any time all, or
from time to time any part of, the Notes, in an amount not less than 10% of the
aggregate principal amount of the Notes then outstanding in the case of a
partial prepayment, at 100% of the principal amount so prepaid, together with
interest accrued thereon to the date of such prepayment plus the Make-Whole
Amount determined for the prepayment date with respect to such principal amount.
The Company will give each holder of Notes written notice of each optional
prepayment under this Section 8.2 not less than 30 days and not more than 60
days prior to the date fixed for such prepayment. Each such notice shall
specify such date, the aggregate principal amount of the Notes to be prepaid on
such date, the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section 8.4), and the interest to be paid on the
prepayment date with respect to such principal amount being prepaid, and shall
be accompanied by a certificate of a Senior Financial Officer as to the
estimated Make-Whole Amount due in connection with such prepayment (calculated
as if the date of such notice were the date of the prepayment), setting forth
the details of such computation. Two Business Days prior to such prepayment,
the Company shall deliver to each holder of Notes a certificate of a Senior
Financial Officer specifying the calculation of such Make-Whole Amount as of the
specified prepayment date.

SECTION 8.3. CHANGE IN CONTROL.

(a) NOTICE OF CHANGE IN CONTROL OR CONTROL EVENT. The Company will,
within five (5) Business Days after any Responsible Officer has knowledge of the
occurrence of any Change in Control or Control Event, give written notice of
such Change in Control or Control Event to each holder of Notes UNLESS notice in
respect of such Change in Control (or the Change in Control contemplated by such
Control Event) shall have been given pursuant to subparagraph (b) of this
Section 8.3. If a Change in Control has occurred, such notice shall contain and
constitute an offer to prepay Notes as described in subparagraph (c) of this
Section 8.3 and shall be accompanied by the certificate described in
subparagraph (g) of this Section 8.3.

(b) CONDITION TO COMPANY ACTION. The Company will not take any action
that consummates or finalizes a Change in Control unless (i) at least
thirty (30) days prior to such action it shall have given to each holder of
Notes written notice containing and constituting an offer to prepay Notes as
described in subparagraph (c) of this Section 8.3, accompanied by the
certificate described in subparagraph (g) of this Section 8.3, and
(ii) contemporaneously with such action, it prepays all Notes required to be
prepaid in accordance with this Section 8.3.

(c) OFFER TO PREPAY NOTES. The offer to prepay Notes contemplated by
subparagraphs (a) and (b) of this Section 8.3 shall be an offer to prepay, in
accordance with and subject to this Section 8.3, all, but not less than all, the
Notes held by each holder (in this case only, "HOLDER" in respect of any Note
registered in the name of a nominee for a disclosed beneficial owner shall mean
such beneficial owner) on a date specified in such offer (the "PROPOSED
PREPAYMENT DATE").

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<PAGE>

If such Proposed Prepayment Date is in connection with an offer contemplated by
subparagraph (a) of this Section 8.3, such date shall be not less than 30 days
and not more than 45 days after the date of such offer (if the Proposed
Prepayment Date shall not be specified in such offer, the Proposed Prepayment
Date shall be the 30th day after the date of such offer).

(d) ACCEPTANCE; REJECTION. A holder of Notes may accept the offer to
prepay made pursuant to this Section 8.3 by causing a notice of such acceptance
to be delivered to the Company at least ten (10) days prior to the Proposed
Prepayment Date. A failure by a holder of Notes to respond to an offer to
prepay made pursuant to this Section 8.3 shall be deemed to constitute a
rejection of such offer by such holder.

(e) PREPAYMENT. Prepayment of the Notes to be prepaid pursuant to this
Section 8.3 shall be at 100% of the principal amount of such Notes together with
interest on such Notes accrued to the date of prepayment but without payment of
a Make-Whole Amount. The prepayment shall be made on the Proposed Prepayment
Date except as provided in subparagraph (f) of this Section 8.3.

(f) DEFERRAL PENDING CHANGE IN CONTROL. The obligation of the Company
to prepay Notes pursuant to the offers required by subparagraph (b) and accepted
in accordance with subparagraph (d) of this Section 8.3 is subject to the
occurrence of the Change in Control in respect of which such offers and
acceptances shall have been made. In the event that such Change in Control does
not occur on the Proposed Prepayment Date in respect thereof, the prepayment
shall be deferred until and shall be made on the date on which such Change in
Control occurs. The Company shall keep each holder of Notes reasonably and
timely informed of (i) any such deferral of the date of prepayment, (ii) the
date on which such Change in Control and the prepayment are expected to occur,
and (iii) any determination by the Company that efforts to effect such Change in
Control have ceased or been abandoned (in which case the offers and acceptances
made pursuant to this Section 8.3 in respect of such Change in Control shall be
deemed rescinded).

(g) OFFICER'S CERTIFICATE. Each offer to prepay the Notes pursuant to
this Section 8.3 shall be accompanied by a certificate, executed by a Senior
Financial Officer of the Company and dated the date of such offer, specifying:
(i) the Proposed Prepayment Date; (ii) that such offer is made pursuant to this
Section 8.3; (iii) the principal amount of each Note offered to be prepaid;
(iv) the interest that would be due on each Note offered to be prepaid, accrued
to the Proposed Prepayment Date; (v) that the conditions of this Section 8.3
have been fulfilled; and (vi) in reasonable detail, the nature and date or
proposed date of the Change in Control.

(h) "CHANGE IN CONTROL" DEFINED. "CHANGE IN CONTROL" means any of the
following events or circumstances:

if any person (as such term is used in section 13(d) and
section 14(d)(2) of the Exchange Act as in effect on the date
of the Closing) or related persons constituting a group (as
such term is used in Rule 13d-5 under the Exchange Act),
other than the

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<PAGE>

Current Management, become the "beneficial owners" (as such term is
used in Rule 13d-3 under the Exchange Act as in effect on the date
of the Closing), directly or indirectly, of more than 50% of the
total voting power of all classes then outstanding of the Company's
voting stock.

(i) "CURRENT MANAGEMENT" Defined. "CURRENT MANAGEMENT" means any one or
more of Timothy L. Dodd, President and General Manager, Gary E. Mackintosh,
Executive Vice President, Sales and Marketing, Thomas P. Friezen, Vice
President, Finance, David E. Tressler, Vice President, Operations (North
Dakota), John C. Lawrie, Vice President, Operations (Minnesota), Harlan W.
Jemison, Vice President, Ingredient and Foodservice, Maurice D. Hanson, Vice
President, Logistics.

(j) "CONTROL EVENT" DEFINED. "CONTROL EVENT" means:

(i) the execution by the Company or any of its Subsidiaries or
Affiliates of any agreement or letter of intent with respect to any
proposed transaction or event or series of transactions or events which,
individually or in the aggregate, may reasonably be expected to result in a
Change in Control, or

(ii) the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control.

SECTION 8.4. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each
partial prepayment of the Notes pursuant to Section 8.2, the principal amount of
the Notes to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof without distinction as to series.

SECTION 8.5. MATURITY; SURRENDER, ETC. In the case of each prepayment of
Notes pursuant to this Section 8, the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the applicable Make-Whole Amount, if any. From and after such date, unless
the Company shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Note paid or prepaid in
full shall be surrendered to the Company and cancelled and shall not be
reissued, and no Note shall be issued in lieu of any prepaid principal amount of
any Note.

SECTION 8.6. PURCHASE OF NOTES. The Company will not and will not permit
any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or
indirectly, any of the outstanding Notes except upon the payment or prepayment
of the Notes in accordance with the terms of this Agreement and the Notes. The
Company will promptly cancel all Notes acquired by it or any Affiliate pursuant
to any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any
such Notes.

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<PAGE>

SECTION 8.7. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with
respect to any Note of a given series, an amount equal to the excess, if any, of
the Discounted Value of the Remaining Scheduled Payments with respect to the
Called Principal of such Note over the amount of such Called Principal, PROVIDED
that the Make-Whole Amount may in no event be less than zero. For the purposes
of determining the Make-Whole Amount for a given series, the following terms
have the following meanings:

"CALLED PRINCIPAL" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or has become or is
declared to be immediately due and payable pursuant to Section 12.1, as the
context requires.

"DISCOUNTED VALUE" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a discount
factor (applied on the same periodic basis as that on which interest on the
Notes is payable) equal to the Reinvestment Yield with respect to such
Called Principal.

"REINVESTMENT YIELD" means, with respect to the Called Principal of
any Note, .60 over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on the
display designated as Screen PX on the Bloomberg Financial Markets Services
Screen (or such other display as may replace Screen PX on the Bloomberg
Financial Markets Services Screen) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or (ii) if such yields are not
reported as of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported, for
the latest day for which such yields have been so reported as of the second
Business Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the actively traded
U.S. Treasury security with the duration closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security
with the duration closest to and less than the Remaining Average Life.

"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) the principal component of each
Remaining Scheduled Payment with respect to such Called Principal by
(b) the number of years (calculated to the nearest one-twelfth year) that
will elapse

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<PAGE>

between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.

"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, PROVIDED that if such Settlement Date is not a date
on which interest payments are due to be made under the terms of the Notes,
then the amount of the next succeeding scheduled interest payment will be
reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to Section 8.2 or
12.1.

"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.

SECTION 9. AFFIRMATIVE COVENANTS.

The Company covenants that so long as any of the Notes are outstanding:

SECTION 9.1. COMPLIANCE WITH LAW. The Company will, and will cause each
of its Subsidiaries to, comply with all laws, ordinances or governmental rules
or regulations to which each of them is subject, including, without limitation,
Environmental Laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

SECTION 9.2. INSURANCE. The Company will, and will cause each of its
Subsidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.

SECTION 9.3. MAINTENANCE OF PROPERTIES. The Company will, and will cause
each of its Subsidiaries to, maintain and keep, or cause to be maintained and
kept, their respective properties in good repair, working order and condition
(other than ordinary wear and tear), so that the business carried on in
connection therewith may be properly conducted at all times, PROVIDED that this
Section shall not prevent the Company or any Subsidiary from discontinuing the
operation and the maintenance of any of its properties if such discontinuance is
desirable in the conduct of

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<PAGE>

its business and the Company has concluded that such discontinuance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

SECTION 9.4. PAYMENT OF TAXES AND CLAIMS. The Company will, and will
cause each of its Subsidiaries to, file all tax returns required to be filed in
any jurisdiction and to pay and discharge all taxes shown to be due and payable
on such returns and all other taxes, assessments, governmental charges, or
levies imposed on them or any of their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent and all claims for which sums have become due and
payable that have or might become a Lien on properties or assets of the Company
or any Subsidiary, PROVIDED that neither the Company nor any Subsidiary need pay
any such tax or assessment or claims if (i) the amount, applicability or
validity thereof is contested by the Company or such Subsidiary on a timely
basis in good faith and in appropriate proceedings, and the Company or a
Subsidiary has established adequate reserves therefor in accordance with GAAP on
the books of the Company or such Subsidiary or (ii) the nonpayment of all such
taxes and assessments in the aggregate could not reasonably be expected to have
a Material Adverse Effect.

SECTION 9.5. CORPORATE EXISTENCE, ETC. The Company will at all times
preserve and keep in full force and effect its corporate existence. Subject to
Sections 10.2 and 10.5, the Company will at all times preserve and keep in full
force and effect the corporate existence of each of its Subsidiaries and all
rights and franchises of the Company and its Subsidiaries unless, in the good
faith judgment of the Company, the termination of or failure to preserve and
keep in full force and effect such corporate existence, right or franchise could
not, individually or in the aggregate, have a Material Adverse Effect.

SECTION 10. NEGATIVE COVENANTS.

The Company covenants that so long as any of the Notes are outstanding:

SECTION 10.1. TRANSACTIONS WITH AFFILIATES. The Company will not and will
not permit any Subsidiary to enter into directly or indirectly any transaction
or Material group of related transactions (including without limitation the
purchase, lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate (other than the Company or another Subsidiary),
except in the ordinary course and pursuant to the reasonable requirements of the
Company's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.

SECTION 10.2. MERGER, CONSOLIDATION, ETC. The Company will not, and will
not permit any of its Subsidiaries to, consolidate with or merge with any other
corporation or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any Person (except that a
Subsidiary of the Company may consolidate with or merge with, or convey,
transfer or lease substantially all of its assets in a single transaction or
series of transactions to, the Company or another Subsidiary of the Company so
long as in any such transaction involving the Guarantor and another Subsidiary
whereunder the Guarantor is not the surviving or purchasing

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corporation, the successor shall be a solvent corporation organized under the
laws of the United States or any State thereof, shall have executed an
assumption of the due and punctual performance of each covenant and condition of
the Financing Agreements to which the Guarantor is a party and no Default or
Event of Default shall exist immediately after giving effect to such
transaction), PROVIDED that the foregoing restriction does not apply to the
consolidation or merger of the Company with, or the conveyance, transfer or
lease of substantially all of the assets of the Company in a single transaction
or series of transactions to, any Person so long as:

(a) the successor formed by such consolidation or the survivor of
such merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Company as an entirety, as the case
may be (the "SUCCESSOR CORPORATION"), shall be a solvent corporation
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia;

(b) if the Company is not the Successor Corporation, such
corporation shall have executed and delivered to each holder of Notes its
assumption of the due and punctual performance and observance of each
covenant and condition of the Financing Agreements in form and substance
reasonably satisfactory to the holders of the Notes; and

No such conveyance, transfer or lease of substantially all of the assets of the
Company shall have the effect of releasing the Company or any Successor
Corporation from its liability under this Agreement, the Other Agreements or the
Notes.

SECTION 10.3. CONSOLIDATED NET WORTH. The Company will not, at any time,
permit Consolidated Net Worth to be less than the sum of (a) $27,000,000, plus
(b) an aggregate amount equal to 30% of its Consolidated Net Income (but, in
each case, only if a positive number) for each completed fiscal year beginning
with the fiscal year ended July 31, 1998.

SECTION 10.4. CERTAIN RATIOS. (a) The Company will not at any time permit
the ratio of (1) Consolidated Cash Flow to (2) Consolidated Fixed Charges, to be
less than 2.00 to 1.0, determined as of the end of each fiscal quarter for the
immediately preceding four fiscal quarters (ending on the date of calculation)
treating such period of four fiscal quarters as a single accounting period.

(b) The Company will not at any time permit the ratio of (1)
Consolidated Funded Debt to (2) Consolidated Cash Flow to exceed (A) 4.00 to
1.00 for the period from the Closing to and including July 31, 1999, (B) 3.50 to
1.00 for the period from August 1, 1999 to and including January 31, 2000 and
(C) 3.00 to 1.00 at all times thereafter, in each case determined as of the end
of each fiscal quarter for the immediately preceding four fiscal quarters
(ending on the date of calculation) treating such period of four fiscal quarters
as a single accounting period.

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(c) The Company will not, at any time, permit Priority Debt to exceed an
amount equal to 10% (or, at all times from and after the Release Date, 15%) of
Consolidated Net Worth.

SECTION 10.5. SALE OF ASSETS, ETC. Except as permitted under Section 10.2,
the Company will not, and will not permit any of its Subsidiaries to, make any
Asset Disposition unless:

(a) in the good faith opinion of the Company, the Asset
Disposition is in exchange for consideration having a Fair Market Value at
least equal to that of the property exchanged and is in the best interest
of the Company or such Subsidiary; and

(b) immediately after giving effect to the Asset Disposition, no
Default or Event of Default would exist; and

(c) immediately after giving effect to the Asset Disposition, the
Disposition Value of all property that was the subject of any Asset
Disposition occurring on or after the date of Closing would not exceed 25%
of Consolidated Assets as of the end of the then most recently ended fiscal
year of the Company.

If the Net Proceeds Amount for any Transfer is applied to a Debt Purchase
Application or a Property Reinvestment Application or any combination thereof
within 360 days after such Transfer, then such Transfer, only for the purpose of
determining compliance with subsection (c) of this Section 10.5 as of a date on
or after the Net Proceeds Amount is so applied, shall be deemed not to be an
Asset Disposition.

SECTION 10.6. DISPOSAL OF OWNERSHIP OF A SUBSIDIARY. The Company will not,
and will not permit any of its Subsidiaries to, sell or otherwise dispose of any
shares of Subsidiary Stock, nor will the Company permit any such Subsidiary to
issue, sell or otherwise dispose of any shares of its own Subsidiary Stock,
PROVIDED that the foregoing restrictions do not apply to:

(a) the issue of directors' qualifying shares by any such
Subsidiary;

(b) any such Transfer of Subsidiary Stock constituting a Transfer
described in clause (a) of the definition of "Asset Disposition"; and

(c) the Transfer of all of the Subsidiary Stock of a Subsidiary
of the Company owned by the Company and its other Subsidiaries if:

(i) such Transfer satisfies the requirements of Section
10.5 hereof,

(ii) in connection with such Transfer the entire
Investment (whether represented by stock, Debt, claims or otherwise)
of the Company and its other Subsidiaries in such Subsidiary is
sold, transferred or otherwise disposed of to a

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Person other than (A) the Company, (B) another Subsidiary not being
simultaneously disposed of, or (C) an Affiliate, and

(iii) the Subsidiary being disposed of has no continuing Investment
in any other Subsidiary of the Company not being simultaneously disposed of
or in the Company.

Notwithstanding the foregoing, the Company shall at all times cause the
Guarantor to be a Subsidiary of the Company PROVIDED that the foregoing shall
not prohibit any transaction otherwise permitted by Section 10.2 hereof.

SECTION 10.7. LIENS. From and after the Release Date, the Company will
not, and will not permit any of its Subsidiaries to, directly or indirectly
create, incur, assume or permit to exist (upon the happening of a contingency or
otherwise) any Lien on or with respect to any property or asset (including,
without limitation, any document or instrument in respect of goods or accounts
receivable) of the Company or any such Subsidiary, whether now owned or held or
hereafter acquired, or any income or profits therefrom or assign or otherwise
convey any right to receive income or profits (unless it makes, or causes to be
made, effective provision whereby the Notes will be equally and ratably secured
with any and all other obligations thereby secured, such security to be pursuant
to an agreement reasonably satisfactory to the Required Holders and, in any such
case, the Notes shall have the benefit, to the fullest extent that, and with
such priority as, the holders of the Notes may be entitled under applicable law,
of an equitable Lien on such property), except:

(a) Liens for taxes, assessments or other governmental charges
which are not yet due and payable or the payment of which is not at the
time required by Section 9.4;

(b) Liens of or resulting from any litigation or legal proceeding
which are currently being contested in good faith by appropriate
proceedings and for which the Company or such Subsidiary shall have set
aside on its books adequate reserves with respect thereto;

(d) Liens existing as of the Release Date and permitted by
Section 5 of the Security Agreements or Section 8 of the Mortgages;

(e) any Lien created to secure all or any part of the purchase
price, or to secure Debt incurred or assumed to pay all or any part of the
purchase price or cost of construction, of tangible property (or any
improvement thereon) acquired or constructed by the Company or a Subsidiary
after the date of the Closing including Liens existing on fixed assets at
the time of acquisition thereof or at the time of acquisition by the
Company or a Subsidiary of any business entity then owing such fixed
assets, whether or not such existing Liens were given to secure the payment
of the purchase price of the fixed assets

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to which they attach so long as they were not incurred, extended or renewed
in contemplation of such acquisition, PROVIDED that

(i) any such Lien shall extend solely to the item or
items of such property (or improvement thereon) so acquired or
constructed and, if required by the terms of the instrument
originally creating such Lien, other property (or improvement
thereon) which is an improvement to or is acquired for specific
use in connection with such acquired or constructed property (or
improvement thereon) or which is real property being improved by
such acquired or constructed property (or improvement thereon),

(ii) the principal amount of the Debt secured by any
such Lien shall at no time exceed an amount equal to 100% of the
Fair Market Value (as determined in good faith by the board of
directors of the Company) of such property (or improvement
thereon) at the time of such acquisition or construction, and

(iii) any such Lien shall be created contemporaneously
with, or within 180 days after, the acquisition or construction of
such property;

(f) Liens incidental to the conduct of business or the ownership
of properties and assets (including Liens in connection with worker's
compensation, unemployment insurance and other like laws, warehousemen's
and attorneys' liens and statutory landlords' liens) and Liens to secure
the performance of bids, tenders or trade contracts, or to secure statutory
obligations, indemnity, surety or appeal bonds or other Liens of like
general nature, in any such case not incurred in connection with the
incurrence of Debt; PROVIDED that such Liens do not, individually or in the
aggregate, materially impair the use of such property encumbered by any
such Lien in the operation of the business of the Company and its
Subsidiaries, taken as a whole, or the value of the property so encumbered
for purposes of such business; PROVIDED FURTHER in each case, the
obligation secured is not overdue or, if overdue, is being contested in
good faith by appropriate actions or proceedings;

(g) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which are necessary for the conduct of the activities of the
Company and its Subsidiaries or which customarily exist on properties of
Persons engaged in similar activities and similarly situated and which do
not in any event materially impair their use in the operation of the
business of the Company and its Subsidiaries, taken as a whole;

(h) any Lien renewing, extending or refunding any Lien permitted
by paragraph (d) of this Section 10.7, PROVIDED that (i) the principal
amount of Debt secured by such Lien immediately prior to such extension,
renewal or refunding is not increased or the maturity thereof reduced,
(ii) such Lien is not extended to any other property, and

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(iii) immediately after such extension, renewal or refunding no
Default or Event of Default would exist; and

(i) other Liens, not otherwise permitted by paragraphs (a)
through (h) hereof, securing Debt of the Company or any Subsidiary
permitted under Section 10.4(c).

For the purposes of this Section 10.7, any Person becoming a Subsidiary after
the date of this Agreement shall be deemed to have incurred all of its then
outstanding Liens at the time it becomes a Subsidiary, and any Person extending,
renewing or refunding any Debt secured by any Lien shall be deemed to have
incurred such Lien at the time of such extension, renewal or refunding.

SECTION 10.8. NATURE OF BUSINESS. The Company will not, and will not
permit any of its Subsidiaries to, engage in any business if, as a result, the
general nature of the business in which the Company and its Subsidiaries, taken
as a whole, would then be engaged would be substantially changed from the
general nature of the business in which the Company and its Subsidiaries, taken
as a whole, are engaged on the date of this Agreement as described in the
Memorandum.

SECTION 10.9. DISTRIBUTIONS. The Company will not pay cash dividends on
capital stock in excess of minimum requirements, as stated in the Company's
bylaws and/or stock certificates, without the prior written consent of the
Required Holders, which consent will not be unreasonably withheld. The Company
may pay cash patronage PROVIDED, that at the time thereof and after giving
effect thereto, no Default or Event of Default exists.

SECTION 11. EVENTS OF DEFAULT.

An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur and be continuing:

(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or

(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and
payable; or

(c) the Company defaults in the performance of or compliance with
any term contained in Sections 10.2 through 10.7 or Section 7.1(d); or

(d) the Company defaults in the performance of or compliance with
any term contained herein (other than those referred to in paragraphs (a),
(b) and (c) of this Section 11) and such default is not remedied within 30
days after the earlier of (i) a Responsible Officer obtaining actual
knowledge of such default and (ii) the Company

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receiving written notice of such default from any holder of a Note (any
such written notice to be identified as a "notice of default" and to refer
specifically to this paragraph (d) of Section 11); or

(e) default shall occur in the observance or performance of any
provision of any Security Document by the Company or the Guarantor, as the
case may be, which is not remedied within 30 days after the earlier of (i)
the day on which a Responsible Officer of the Company first obtains
knowledge of such default, or (ii) the day on which written notice thereof
is given to the Company by the holder of any Note; or

(f) any representation or warranty made in writing by or on
behalf of the Company or the Guarantor or by any officer of the Company in
any Financing Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect in
any material respect on the date as of which made; or

(g) (i) the Company or any Subsidiary is in default (as principal
or as guarantor or other surety) in the payment of any principal of or
premium or make-whole amount or interest on any Debt that is outstanding in
an aggregate principal amount of at least $1,000,000 beyond any period of
grace provided with respect thereto, or (ii) the Company or any Subsidiary
is in default in the performance of or compliance with any term of any
evidence of any Debt in an aggregate outstanding principal amount of at
least $1,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and either (x) such default remains
uncured and unwaived for at least 90 days or (y) as a consequence of such
default or condition such Debt has become, or has been declared (or one or
more Persons are entitled to declare such Debt to be), due and payable
before its stated maturity or before its regularly scheduled dates of
payment, or (iii) as a consequence of the occurrence or continuation of any
event or condition (other than the passage of time or the right of the
holder of Debt to convert such Debt into equity interests), (x) the Company
or any Subsidiary has become obligated to purchase or repay Debt before its
regular maturity or before its regularly scheduled dates of payment in an
aggregate outstanding principal amount of at least $1,000,000, or (y) one
or more Persons have the right to require the Company or any Subsidiary so
to purchase or repay such Debt; or

(h) the Company or any Subsidiary (i) is generally not paying, or
admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of,
a petition for relief or reorganization or arrangement or any other
petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other similar law of
any jurisdiction, (iii) makes an assignment for the benefit of its
creditors, (iv) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, (v) is adjudicated as
insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of any of the foregoing; or

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(i) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of its
Subsidiaries, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for
relief or reorganization or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or liquidation of the
Company or any of its Subsidiaries, or any such petition shall be filed
against the Company or any of its Subsidiaries and such petition shall not
be dismissed within 60 days; or

(j) a final judgment or judgments for the payment of money
aggregating in excess of $1,000,000 are rendered against one or more of the
Company and its Subsidiaries and which judgments are not, within 45 days
after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 45 days after the expiration of such stay; or

(k) any Financing Agreement shall cease to be in full force and
effect for any reason whatsoever, including, without limitation, a
determination by any governmental body or court that such agreement is
invalid, void or unenforceable or any obligor thereunder shall contest or
deny in writing the validity or enforceability of any of its obligations
under such Financing Agreement; or

(l) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified the Company or any ERISA Affiliate that a Plan
may become a subject of any such proceedings, (iii) the aggregate "amount
of unfunded benefit liabilities" (within the meaning of section 4001(a)(18)
of ERISA) under all Plans, determined in accordance with Title IV of ERISA,
shall exceed $100,000, (iv) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability pursuant to Title
I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, (v) the Company or any ERISA Affiliate
withdraws from any Multiemployer Plan, or (vi) the Company or any
Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase
the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either
individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect.

As used in Section 11(l), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.

SECTION 12. REMEDIES ON DEFAULT, ETC.

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SECTION 12.1. ACCELERATION. (a) If an Event of Default with respect to the
Company or the Guarantor described in paragraph (h) or (i) of Section 11 (other
than an Event of Default described in clause (i) of paragraph (h) or described
in clause (vi) of paragraph (h) by virtue of the fact that such clause
encompasses clause (i) of paragraph (h)) has occurred, all the Notes then
outstanding shall automatically become immediately due and payable.

(b) If any other Event of Default has occurred and is continuing, any
holder or holders of more than 25% in principal amount of the Notes at the time
outstanding may at any time at its or their option, by notice or notices to the
Company, declare all the Notes then outstanding to be immediately due and
payable.

(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to the Company, declare all the Notes held by
it or them to be immediately due and payable.

Upon any Note's becoming due and payable under this Section 12.1, whether
automatically or by declaration, such Note will forthwith mature and the entire
unpaid principal amount of such Note, plus (i) all accrued and unpaid interest
thereon and (ii) the Make-Whole Amount determined in respect of such principal
amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for), and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.

SECTION 12.2. OTHER REMEDIES. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 12.1, the holder of
any Note at the time outstanding may proceed to protect and enforce the rights
of such holder by an action at law, suit in equity or other appropriate
proceeding (including, without limitations, all rights and remedies available to
such holder under any of the other Financing Agreements), whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.

SECTION 12.3. RESCISSION. At any time after any Notes have been declared
due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of
not less than 76% in principal amount of the Notes then outstanding, by written
notice to the Company, may rescind and annul any such declaration and its
consequences if (a) the Company has paid all overdue interest on the Notes, all
principal of and Make-Whole Amount, if any, on any Notes that are due and
payable and are unpaid other than by reason of such declaration, and all
interest on such overdue principal and Make-Whole Amount, if any, and (to the
extent permitted by applicable law) any overdue

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interest in respect of the Notes, at the Default Rate, (b) all Events of Default
and Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.

SECTION 12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course
of dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred
by this Agreement or by any Note upon any holder thereof shall be exclusive of
any other right, power or remedy referred to herein or therein or now or
hereafter available at law, in equity, by statute or otherwise. Without
limiting the obligations of the Company under Section 15, the Company will pay
to the holder of each Note on demand such further amount as shall be sufficient
to cover all costs and expenses of such holder incurred in any enforcement or
collection under this Section 12, including, without limitation, reasonable
attorneys' fees, expenses and disbursements.

SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

SECTION 13.1. REGISTRATION OF NOTES. The Company shall keep at its
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.

SECTION 13.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note
at the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or its attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes of the same series (as
requested by the holder thereof) in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1-A or 1-B, as the case may be. Each such
new Note shall be dated and bear interest from the date to which interest shall
have been paid on the surrendered Note or dated the date of the surrendered Note
if no interest shall have been paid thereon. The Company may require payment of
a sum sufficient to cover any stamp tax or governmental charge imposed in
respect of any such transfer of Notes. Notes shall not be transferred in
denominations of less than $100,000, PROVIDED that if necessary to enable the

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registration of transfer by a holder of its entire holding of Notes, one Note
may be in a denomination of less than $100,000. Any transferee, by its
acceptance of a Note registered in its name (or the name of its nominee), shall
be deemed to have made the representation set forth in Section 6.2.

SECTION 13.3. REPLACEMENT OF NOTES. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note (which evidence shall be, in the case of
an Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and

(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (PROVIDED that if the holder of such Note is,
or is a nominee for, an original Purchaser or another holder of a Note with
a minimum net worth of at least $5,000,000, such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or

(b) in the case of mutilation, upon surrender and cancellation
thereof,

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.

SECTION 14. PAYMENTS ON NOTES.

SECTION 14.1. PLACE OF PAYMENT. Subject to Section 14.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in Carrington, North Dakota at the principal office of
the Company in such jurisdiction. The Company may at any time, by notice to
each holder of a Note, change the place of payment of the Notes so long as such
place of payment shall be either the principal office of the Company in such
jurisdiction or the principal office of a bank or trust company in such
jurisdiction.

SECTION 14.2. HOME OFFICE PAYMENT. So long as you or your nominee shall be
the holder of any Note, and notwithstanding anything contained in Section 14.1
or in such Note to the contrary, the Company will pay all sums becoming due on
such Note for principal, Make-Whole Amount, if any, and interest by the method
and at the address specified for such purpose below your name in Schedule A, or
by such other method or at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, you shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 14.1. Prior
to any sale or other disposition of any Note held by you or your nominee you
will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes pursuant to

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Section 13.2. The Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 14.2.

SECTION 15. EXPENSES, ETC.

SECTION 15.1. TRANSACTION EXPENSES. Whether or not the transactions
contemplated hereby are consummated, the Company will pay all costs and expenses
(including reasonable attorneys' fees of a special counsel and, if reasonably
required, local or other counsel) incurred by you and each Other Purchaser or
holder of a Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of the Financing Agreements
(whether or not such amendment, waiver or consent becomes effective), including,
without limitation: (a) the costs and expenses incurred in enforcing or
defending (or determining whether or how to enforce or defend) any rights under
the Financing Agreements or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with the Financing
Agreements, or by reason of being a holder of any Note, and (b) the costs and
expenses, including financial advisors' fees, incurred in connection with the
insolvency or bankruptcy of the Company or any Subsidiary or in connection with
any work-out or restructuring of the transactions contemplated hereby and by the
Notes. The Company will pay, and will save you and each other holder of a Note
harmless from, all claims in respect of any fees, costs or expenses, if any, of
brokers and finders (other than those retained by you).

SECTION 15.2. SURVIVAL. The obligations of the Company under this
Section 15 will survive the payment or transfer of any Note, the enforcement,
amendment or waiver of any provision of the Financing Agreements, and the
termination of this Agreement.

SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

All representations and warranties contained herein shall survive the
execution and delivery of the Financing Agreements, the purchase or transfer by
you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company or the Guarantor pursuant to any
Financing Agreement shall be deemed representations and warranties of the
Company or the Guarantor under such Financing Agreement. Subject to the
preceding sentence, the Financing Agreements embody the entire agreement and
understanding between you and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.

SECTION 17. AMENDMENT AND WAIVER.

SECTION 17.1. REQUIREMENTS. This Agreement and the Notes may be amended,
and the observance of any term hereof or of the Notes may be waived (either
retroactively or

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<PAGE>

prospectively), with (and only with) the written consent of the Company, the
Guarantor and the Required Holders, except that (a) no amendment or waiver of
any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined
term (as it is used therein), will be effective as to you unless consented to by
you in writing, and (b) no such amendment or waiver may, without the written
consent of the holder of each Note at the time outstanding affected thereby,
(i) subject to the provisions of Section 12 relating to acceleration or
rescission, change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage
of the principal amount of the Notes the holders of which are required to
consent to any such amendment or waiver, or (iii) amend any of Sections 8,
11(a), 11(b), 12, 17 or 20.

SECTION 17.2. SOLICITATION OF HOLDERS OF NOTES.

(a) SOLICITATION. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.

(b) PAYMENT. The Company will not directly or indirectly pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes of any waiver or amendment of any of the terms and provisions of any
Financing Agreement unless such remuneration is concurrently paid, or security
is concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding whether or not such holder consented to such waiver or amendment.

SECTION 17.3. BINDING EFFECT, ETC. Any amendment or waiver consented to as
provided in this Section 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the Company
and the Guarantor without regard to whether such Note has been marked to
indicate such amendment or waiver. No such amendment or waiver will extend to
or affect any obligation, covenant, agreement, Default or Event of Default not
expressly amended or waived or impair any right consequent thereon. No course
of dealing between the Company and the holder of any Note nor any delay in
exercising any rights hereunder or under any Note shall operate as a waiver of
any rights of any holder of such Note. As used herein, the term "this
Agreement" and references thereto or to any Financing Agreement shall mean this
Agreement as it may from time to time be amended or supplemented.

SECTION 17.4. NOTES HELD BY COMPANY, ETC. Solely for the purpose of
determining whether the holders of the requisite percentage of the aggregate
principal amount of Notes then outstanding approved or consented to any
amendment, waiver or consent to be given under this Agreement or the Notes, or
have directed the taking of any action provided herein or in the Notes

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<PAGE>

to be taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Company or any of its Affiliates shall be deemed not to
be outstanding.

SECTION 18. NOTICES.

All notices and communications provided for hereunder shall be in writing
and sent (a) by telefacsimile if the sender on the same day sends a confirming
copy of such notice by a recognized overnight delivery service (charges
prepaid), or (b) by registered or certified mail with return receipt requested
(postage prepaid), or (c) by a recognized overnight delivery service (with
charges prepaid). Any such notice must be sent:

(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other address
as you or it shall have specified to the Company in writing,

(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or

(iii) if to the Company, to the Company at its address set forth at
the beginning hereof to the attention of Vice President-Finance, or at such
other address as the Company shall have specified to the holder of each
Note in writing.

Notices under this Section 18 will be deemed given only when actually received.

SECTION 19. REPRODUCTION OF DOCUMENTS.

Any Financing Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.

SECTION 20. CONFIDENTIAL INFORMATION.

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<PAGE>

For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by you as being confidential
information of the Company or such Subsidiary, PROVIDED that such term does not
include information that (a) was publicly known or otherwise known to you prior
to the time of such disclosure, (b) subsequently becomes publicly known through
no act or omission by you or any Person acting on your behalf, (c) otherwise
becomes known to you other than through disclosure by the Company or any
Subsidiary or (d) constitutes financial statements delivered to you under
Section 7.1 that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by you in good faith to protect confidential information of third
parties delivered to you, PROVIDED that you may deliver or disclose Confidential
Information to (i) your directors, trustees, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by your Notes), (ii) your
financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this Section 20, (iii) any other holder of any Note, (iv) any
Institutional Investor to which you sell or offer to sell such Note or any part
thereof or any participation therein (if such Person has agreed in writing prior
to its receipt of such Confidential Information to be bound by the provisions of
this Section 20), (v) any Person from which you offer to purchase any security
of the Company (if such Person has agreed in writing prior to its receipt of
such Confidential Information to be bound by the provisions of this Section 20),
(vi) any federal or state regulatory authority having jurisdiction over you,
(vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about your investment portfolio or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to you, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which you are a party or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement. Each
holder of a Note, by its acceptance of a Note, will be deemed to have agreed to
be bound by and to be entitled to the benefits of this Section 20 as though it
were a party to this Agreement. On reasonable request by the Company in
connection with the delivery to any holder of a Note of information required to
be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 20.

SECTION 21. SUBSTITUTION OF PURCHASER.

You shall have the right to substitute any one of your Affiliates as the
purchaser of the Notes that you have agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever

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<PAGE>

the word "you" is used in this Agreement (other than in this Section 21), such
word shall be deemed to refer to such Affiliate in lieu of you. In the event
that such Affiliate is so substituted as a purchaser hereunder and such
Affiliate thereafter transfers to you all of the Notes then held by such
Affiliate, upon receipt by the Company of notice of such transfer, wherever the
word "you" is used in this Agreement (other than in this Section 21), such word
shall no longer be deemed to refer to such Affiliate, but shall refer to you,
and you shall have all the rights of an original holder of the Notes under this
Agreement.

SECTION 22. MISCELLANEOUS.

SECTION 22.1. SUCCESSORS AND ASSIGNS. All covenants and other agreements
contained in this Agreement by or on behalf of any of the parties hereto bind
and inure to the benefit of their respective successors and assigns (including,
without limitation, any subsequent holder of a Note) whether so expressed or
not.

SECTION 22.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or Make-Whole Amount or interest on any Note that is due on a date other than
a Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest payable
on such next succeeding Business Day.

SECTION 22.3. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.

SECTION 22.4. CONSTRUCTION. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.

SECTION 22.5. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which together
shall constitute one instrument. Each counterpart may consist of a number of
copies hereof, each signed by less than all, but together signed by all, of the
parties hereto.

SECTION 22.6. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of North Dakota excluding choice-of-law principles of the
law of such State that would require the application of the laws of a
jurisdiction other than such State.

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<PAGE>

SECTION 22.7. ADDITIONAL DEBT. Subject to the terms and provisions hereof,
the Company may, from time to time, issue and sell additional senior promissory
notes and may, in connection with the documentation thereof, incorporate by
reference various provisions of this Agreement. Such incorporation by reference
shall not modify, dilute or otherwise affect the terms and provisions hereof.

* * * * *

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<PAGE>

If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.

Very truly yours,

DAKOTA GROWERS PASTA COMPANY

By /s/ Timothy J. Dodd
Its President

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<PAGE>

Accepted as of August 1, 1998:

MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY

By /s/ Michael L. Klofax
Its Managing Director

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<PAGE>

Accepted as of August 1, 1998:

BAYSTATE HEALTH SYSTEMS, INC.

By: Massachusetts Mutual Life
Insurance Company, its Investment
Adviser

By /s/ Michael L. Klofax
Its Investment Officer

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<PAGE>

Accepted as of August 1, 1998:

CM LIFE INSURANCE COMPANY

By /s/ Michael L. Klofax
Its Investment Officer

-48-

<PAGE>

Accepted as of August 1, 1998:

THE SECURITY MUTUAL LIFE INSURANCE
COMPANY OF LINCOLN, NEBRASKA

By /s/ Kevin W. Hammond

Its Vice President
Chief Investment Officer

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<PAGE>

Accepted as of August 1, 1998:

THE CANADA LIFE ASSURANCE COMPANY

By /s/ Kevin Phelan
Its Assistant Treasurer

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<PAGE>

INFORMATION RELATING TO PURCHASERS

PRINCIPAL AMOUNT
AND SERIES OF NOTES
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED

MASSACHUSETTS MUTUAL LIFE INSURANCE $2,500,000 Series A
COMPANY $1,500,000 Series B
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Mark A. Ahmed, Managing Director

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Dakota Growers Pasta Company, 7.04% Senior Secured Guaranteed Notes, Series A,
due 2008, PPN 23423# AA 5 and 7.14% Senior Secured Guaranteed Notes, Series B,
due 2010, PPN 23423# AB 3, principal, premium or interest") to:

Chase Manhattan Bank, N.A. (ABA #021000021)
4 Chase MetroTech Center
New York, New York 10081

for credit to: MassMutual IFM Non-Traditional Account Number 910-2509073
Re: Description of security, principal and interest split

with telephone advice of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at (413) 744-3878,
Facsimile: (413) 744-6263.

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments, to be addressed Attention: Securities Custody
and Collection Department, F 381.

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 04-1590850

SCHEDULE A

(to Note Purchase Agreement)

<PAGE>

PRINCIPAL AMOUNT
AND SERIES OF NOTES
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED

MASSACHUSETTS MUTUAL LIFE INSURANCE $9,500,000 Series A
COMPANY $5,250,000 Series B
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division

Payments

Citibank, N.A. (ABA #021000089)
111 Wall Street
New York, New York 10043

for credit to: MassMutual Long Term Pool Account Number 4067-3488
Re: Description of security, principal and interest split

with telephone advice of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at (413) 744-3878,
Facsimile: (413) 744-6263.

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments, to be addressed Attention: Securities Custody
and Collection Department, F 381.

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 04-1590850

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<PAGE>

PRINCIPAL AMOUNT
AND SERIES OF NOTES
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED

BAYSTATE HEALTH SYSTEMS, INC. $500,000 Series A
(Intermediate Aggregate)
c/o Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Thomas Li, Managing Director

Payments

Boston Safe Deposit and Trust Company
ABA #011001234
DDA No. 048771
Ref: Baystate Health Systems Intermediate Aggregate
A/C #BPOF3001002
Re: Description of security, principal and interest split

with telephone advice of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at (413) 744-3561,
Facsimile: (413) 744-6263.

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments, to be addressed Attention: Securities Custody
and Collection Department, F 381.

Name of Nominee in which Notes are to be issued: MAC & Co.

Taxpayer I.D. Number: 04-2105941

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<PAGE>

PRINCIPAL AMOUNT
AND SERIES OF NOTES
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED

CM LIFE INSURANCE COMPANY $500,000 Series A
c/o Massachusetts Mutual Life Insurance Company $250,000 Series B
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Mark A. Ahmed, Managing Director

Payments

Citibank, N.A. (ABA #021000089)
111 Wall Street
New York, New York 10043

for credit to: Segment 43 - Universal Life Account Number 4068-6561
Re: Description of security, principal and interest split

with telephone advice of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at (413) 744-3878.

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments, to be addressed Attention: Securities Custody
and Collection Department, F 381.

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 06-1041383

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<PAGE>

PRINCIPAL AMOUNT
AND SERIES OF NOTES
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED

THE SECURITY MUTUAL LIFE INSURANCE $2,000,000 Series B
COMPANY OF LINCOLN, NEBRASKA
200 Centennial Mall North
Lincoln, Nebraska 68508

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Dakota Growers Pasta Company, 7.14% Senior Secured Guaranteed Notes, Series B,
due 2010, PPN 23423# AB 3, principal, premium or interest") to:

National Bank of Commerce (ABA #1040-00045)
13th and O Street
Lincoln, Nebraska

for credit to: Security Mutual Life
Account Number 40-797-624

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments and written confirmation of each such payment
to be addressed:

The Security Mutual Life Insurance Company
of Lincoln, Nebraska
200 Centennial Mall North
Lincoln, Nebraska 68508
Attention: Investment Department
Fax: (402) 434-9599
Phone: (402) 434-9500

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 47-0293990

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<PAGE>

PRINCIPAL AMOUNT
AND SERIES OF NOTES
NAME AND ADDRESS OF PURCHASER TO BE PURCHASED

THE CANADA LIFE ASSURANCE COMPANY $5,000,000 Series A
330 University Avenue
Toronto, Ontario, Canada M5G 1R8
Attention: U.S. Private Placements, SP-11
Brian Lynch, Treasurer, U.S.

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:

Chase Manhattan Bank
New York, New York

ABA #021-000-021
Product Code CTR

For Credit to:

Beneficiary Bank Canadian Imperial Bank of Commerce (CIBC)
Head Office
Toronto, Ontario
UID# 015035

For further credit to: Canada Life Mortgage Swap
Account No. 05-90916

Notify Michael Padua (416) 597-1440 ext. 5691

Reference: Security/Issuer, Coupon, Maturity, PPN

reference: name of issuer, rate, maturity date, type of security, whether
principal and/or interest and due date

Notices

All notices and communications to be addressed as first provided above, except
notice with respect to payment, and written confirmation of each such payment,
to be addressed:

The Canada Life Assurance Company
330 University Avenue
Toronto, Ontario, Canada M5G 1R8

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<PAGE>

Attention: Securities Accounting, SP-12

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 38-0397420

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<PAGE>

DEFINED TERMS

GENERAL PROVISIONS

Where the character or amount of any asset or liability or item of income
or expense is required to be determined or any consolidation or other accounting
computation is required to be made for the purposes of this Agreement, the same
shall be done in accordance with GAAP, to the extent applicable, except where
such principles are inconsistent with the express requirements of this
Agreement.

Where any provision in this Agreement refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether the action in question is taken directly or indirectly by
such Person.

As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:

"AFFILIATE" means, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "CONTROL" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "AFFILIATE"
is a reference to an Affiliate of the Company.

"ASSET DISPOSITION" means any Transfer except (a) any Transfer from a
Subsidiary to the Company or a Wholly-Owned Subsidiary and (b) any Transfer made
in the ordinary course of business and involving only property that is either
(i) inventory held for sale or (ii) equipment, fixtures, supplies or materials
no longer required in the operation of the business of the Company or any of its
Subsidiaries or that is obsolete.

"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which commercial banks in St. Paul, Minnesota are required or authorized to be
closed.

"CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP or for which the amount of the
asset and liability thereunder should be in accordance with GAAP disclosed in a
note to such balance sheet as if so capitalized.

SCHEDULE B
(to Note Purchase Agreement)

<PAGE>

"CAPITAL LEASE OBLIGATION" means, with respect to any Person and a Capital
Lease, the amount of the obligation of such Person as the lessee under such
Capital Lease which would, in accordance with GAAP, appear as a liability on a
balance sheet of such Person or for which the amount of the asset and liability
thereunder should be in accordance with GAAP disclosed in a note to such balance
sheet as if so capitalized.

"CLOSING" is defined in Section 3.

"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.

"COLLATERAL DOCUMENTS" shall mean the Security Agreements and each other
security, mortgage, pledge or deposit document or agreement that may from time
to time be executed pursuant to the terms of this Agreement or the Intercreditor
Agreement.

"COMPANY" means Dakota Growers Pasta Company, a North Dakota corporation,
incorporated as an agricultural cooperative.

"CONFIDENTIAL INFORMATION" is defined in Section 20.

"CONSOLIDATED ASSETS" means, at any time, the total assets of the Company
and its Subsidiaries which would be shown as assets on a consolidated balance
sheet of the Company and its Subsidiaries as of such time prepared in accordance
with GAAP, after eliminating all amounts properly attributable to minority
interests, if any, in the stock and surplus of Subsidiaries.

"CONSOLIDATED CASH FLOW" means, in respect of any period, the sum of
(a) Consolidated Net Income for such period and (b) the amount of all
depreciation, amortization, and income taxes of the Company and its Subsidiaries
and (c) Consolidated Fixed Charges, but, in the case of (b) and (c) above, only
to the extent deducted in the determination of Consolidated Net Income for such
period. "CONSOLIDATED CASH FLOW" shall be adjusted retroactively to give effect
to earnings or losses of any other corporation the assets of which have been
acquired substantially as an entity by purchase, merger, consolidation or
otherwise after the beginning of such period and such acquisition is completed
prior to the end of such period and, if less than substantially all of the
assets of such other corporation are being or have been so acquired, and such
assets constitute substantially all of the assets theretofore employed by such
corporation in a divisional, branch or other unit operation, the earnings
determined to be properly attributable to the assets so acquired may be so
included.

"CONSOLIDATED FIXED CHARGES" means, with respect to any period, the sum of
(a) Interest Charges for such period and (b) Lease Rentals for such period,
determined, in the case of (a) and (b) above on a pro forma basis giving effect
as of the beginning of such period to the incurrence of any Funded Debt or Lease
Rentals thereof (including all amounts due and owing under any Capitalized
Leases), and the concurrent retirement of outstanding Funded Debt or Lease
Rentals or termination of any Capitalized Leases thereof. "CONSOLIDATED FIXED
CHARGES" shall be adjusted retroactively to give effect to the leases of real
and personal property and the Debt of any

B-59
<PAGE>

business entity acquired by the Company or any Subsidiary and shall be computed
as though (x) such leases of real and personal property of such business entity
so acquired had been in effect, (y) such Debt of such business entity so
acquired had been owed by the Company and (z) such business entity had been a
Subsidiary, as the case may be, throughout the applicable period.

"CONSOLIDATED FUNDED DEBT" shall mean all Funded Debt of the Company and
its Subsidiaries determined on a consolidated basis in accordance with GAAP.

"CONSOLIDATED NET INCOME" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries for such period (taken as a
cumulative whole), as determined in accordance with GAAP, after eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP, PROVIDED that there shall be excluded:

(a) the income (or loss) of any Person (other than a Subsidiary) in which
the Company or any Subsidiary has an ownership interest, except to the extent
that any such income has been actually received by the Company or such
Subsidiary in the form of cash dividends or similar cash distributions, and

(b) any net income or gain (but not any net loss) during such period from
change in accounting principles in accordance with GAAP or any extraordinary
items.

"CONSOLIDATED NET WORTH" means, at any time, the members' and stockholders'
investment determined in accordance with GAAP without reduction for intangible
assets.

"DEBT" with respect to any Person means, at any time, without duplication,

(a) its liabilities for borrowed money;

(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including all liabilities created or arising under
any conditional sale or other title retention agreement with respect to any
such property);

(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed
or otherwise become liable for such liabilities);

(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money);

B-60
<PAGE>

(f) Swaps of such Person; and

(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.

Debt of any Person shall include all obligations of such Person of the character
described in clauses (a) through (g) to the extent such Person remains legally
liable in respect thereof notwithstanding that any such obligation is deemed to
be extinguished under GAAP. Debt of any Person shall exclude all amounts which
would otherwise be included in Debt which represent unfunded obligations under
any Plan.

"DEBT PURCHASE APPLICATION" means, with respect to any Transfer of
property, the application by the Company or its Subsidiaries of cash in an
amount up to the Net Proceeds Amount with respect to such Transfer to pay or
prepay Senior Debt of the Company which shall include a prepayment of the
principal amount of the Notes which bears the same ratio to the aggregate
principal amount of all Notes as the principal amount of all Notes bears to the
principal amount of all Senior Debt (other than Senior Debt owing to the
Company, any of its Subsidiaries or any Affiliate) which prepayment shall
include the Make-Whole Amount (and accrued and unpaid interest to the date of
prepayment on the principal being prepaid) calculated as if such prepayment were
a prepayment pursuant to Section 8.2.

"DEFAULT" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.

"DEFAULT RATE" with respect to each series of Notes means that rate of
interest that is the greater of (i) 2% per annum above the rate of interest
stated in clause (a) of the first paragraph of the Notes of such series or
(ii) 2% over the rate of interest publicly announced by St. Paul Bank for
Cooperatives in St. Paul, Minnesota as its "base" or "prime" rate.

"DISPOSITION VALUE" means, at any time, with respect to any property

(a) in the case of property that does not constitute Subsidiary
Stock, the book value thereof, valued at the time of such disposition in
good faith by the Company, and

(b) in the case of property that constitutes Subsidiary Stock, an
amount equal to that percentage of book value of the assets of the
Subsidiary that issued such stock as is equal to the percentage that the
book value of such Subsidiary Stock represents of the book value of all of
the outstanding capital stock of such Subsidiary (assuming, in making such
calculations, that all Securities convertible into such capital stock are
so converted and giving full effect to all transactions that would occur or
be required in connection with such conversion) determined at the time of
the disposition thereof, in good faith by the Company.

"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants,

B-61
<PAGE>

franchises, licenses, agreements or governmental restrictions relating to
pollution and the protection of the environment or the release of any materials
into the environment, including but not limited to those related to hazardous
substances or wastes, air emissions and discharges to waste or public systems.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.

"ERISA AFFILIATE" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.

"EVENT OF DEFAULT" is defined in Section 11.

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

"FAIR MARKET VALUE" means, at any time and with respect to any property,
the sale value of such property that would be realized in an arm's-length sale
at such time between an informed and willing buyer and an informed and willing
seller (neither being under a compulsion to buy or sell).

"FINANCING AGREEMENTS" shall mean and include this Agreement and the Other
Agreements, the Notes, the Security Documents and any additional collateral
documents or related agreements evidencing the obligations of the Company, the
Guarantor or any other guarantor or obligor with respect to the Notes or with
respect to any additional rights or remedies given to the holders of the Notes.

"FUNDED DEBT" means, with respect to any Person, all Debt of such Person
which by its terms or by the terms of any instrument or agreement relating
thereto matures, or which is otherwise payable or unpaid, one year or more from,
or is directly or indirectly renewable or extendible at the option of the
obligor in respect thereof to a date one year or more (including, without
limitation, an option of such obligor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of one
year or more) from, the date of the creation thereof PROVIDED that "FUNDED DEBT"
shall not include that portion of any Debt outstanding under a revolving credit
or similar agreement that has been paid down (and not refinanced during such
period with a short-term line of credit or similar agreement or otherwise) for a
period of at least thirty consecutive days during the immediately preceding
12-month period.

"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.

"GOVERNMENTAL AUTHORITY" means

(a) the government of

B-62
<PAGE>

(i) the United States of America or any State or other political
subdivision thereof, or

(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary, or

(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.

"GUARANTY" means, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:

(a) to purchase such indebtedness or obligation or any property
constituting security therefor;

(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any
other Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;

(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or

(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.

In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.

"GUARANTOR" shall mean Primo Piatto, Inc., a Minnesota corporation.

"GUARANTY AGREEMENT" shall mean the Guaranty Agreement made by the
Guarantor in the form attached hereto as Exhibit GA.

"HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration

B-63
<PAGE>

of which is or shall be restricted, prohibited or penalized by any applicable
law (including, without limitation, asbestos, urea formaldehyde foam insulation
and polychlorinated biphenyls).

"HOLDER" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to
Section 13.1.

"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 10% of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.

"INTERCREDITOR AGREEMENT" shall mean that Agency and Intercreditor
Agreement dated as of July 15, 1998 among St. Paul Bank for Cooperatives and the
Purchasers, as amended.

"INTEREST CHARGES" means, with respect to any period, the sum (without
duplication) of the following (in each case, eliminating all offsetting debits
and credits between the Company and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Subsidiaries in accordance with
GAAP): (a) all interest in respect of Debt of the Company and its Subsidiaries
(including imputed interest on Capital Lease Obligations) deducted in
determining Consolidated Net Income for such period, together with all interest
capitalized or deferred during such period and not deducted in determining
Consolidated Net Income for such period, and (b) all debt discount and expense
amortized or required to be amortized in the determination of Consolidated Net
Income for such period.

"INVESTMENT" means any investment, made in cash or by delivery of property,
by the Company or any of its Subsidiaries (i) in any Person, whether by
acquisition of stock, indebtedness of other obligation or Security, or by loan,
Guaranty, advance, capital contribution or otherwise, or (ii) in any property.

"LEASE RENTALS" means, with respect to any period, the sum of the rental
and other obligations required to be paid during such period by the Company or
any Subsidiary as lessee under all leases of real or personal property (other
than Capital Leases), excluding any amount required to be paid by the lessee
(whether or not therein designated as rental or additional rental) on account of
maintenance and repairs, insurance, taxes, assessments, water rates and similar
charges, PROVIDED that, if at the date of determination, any such rental or
other obligations (or portion thereof) are contingent or not otherwise
definitely determinable by the terms of the related lease, the amount of such
obligations (or such portion thereof) (i) shall be assumed to be equal to the
amount of such obligations for the period of 12 consecutive calendar months
immediately preceding the date of determination or (ii) if the related lease was
not in effect during such preceding 12-month period, shall be the amount
estimated by a Senior Financial Officer of the Company on a reasonable basis and
in good faith.

B-64
<PAGE>

"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).

"LOAN AGREEMENT" shall mean the Loan Agreement approved July 23, 1998
between the Company and St. Paul Bank for Cooperatives, as amended or modified
from time to time.

"MAKE-WHOLE AMOUNT" is defined in Section 8.7.

"MATERIAL" means material in relation to the business, operations, affairs,
financial condition, assets, properties, or prospects of the Company and its
Subsidiaries taken as a whole.

"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under the Financing Agreements and the Notes, or
(c) the validity or enforceability of the Financing Agreements or the Notes.

"MEMORANDUM" is defined in Section 5.3.

"MORTGAGES" shall mean that certain Primo Piatto Real Estate Mortgage dated
as of the 11th day of August 1998 by the Guarantor to St. Paul Bank for
Cooperatives, as agent, and that certain Dakota Growers Pasta Company Real
Estate Mortgage dated as of the 11th day of August 1998 by the Company to
St. Paul Bank for Cooperatives, as agent.

"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).

"NET PROCEEDS AMOUNT" means, with respect to any Transfer of any Property
by any Person, an amount equal to the DIFFERENCE of

(a) the aggregate amount of the consideration (valued at the Fair
Market Value of such consideration at the time of the consummation of such
Transfer LESS any amount paid to release any Liens on such Property)
received by such Person in respect of such Transfer, MINUS

(b) all ordinary and reasonable out-of-pocket costs and expenses
actually incurred by such Person in connection with such Transfer.

"NOTES" is defined in Section 1.

"OBLIGORS" means the Company and the Guarantor.

B-65
<PAGE>

"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer
or of any other officer of the Company whose responsibilities extend to the
subject matter of such certificate.

"OTHER AGREEMENTS" is defined in Section 2.

"OTHER PURCHASERS" is defined in Section 2.

"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

"PERSON" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.

"PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.

"PRIORITY DEBT" means and includes, at any time, all Debt of Subsidiaries,
PLUS, from and after the Release Date, all Debt of the Company secured by a Lien
other than a Lien permitted by subparagraphs (a) through (h) of Section 10.7.

"PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or
inchoate.

"PROPERTY REINVESTMENT APPLICATION" means, with respect to any Transfer of
property, the application by the Company or any Subsidiary of an amount up to
the Net Proceeds Amount with respect to such Transfer to the acquisition by the
Company or any Subsidiary of operating assets of the Company or any Subsidiary
to be used in the ordinary course of business of such Person.

"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued
by the United States Department of Labor.

"RELEASE DATE" means the first date on which (i) each Collateral Document
has been released by the holders of the Notes in accordance with the terms
thereof and (ii) all liens securing the Loan Agreement have been released in
accordance with the terms thereof.

"REQUIRED HOLDERS" means, at any time, the holders of at least 66-2/3% in
principal amount of each series of the Notes at the time outstanding (exclusive
of Notes then owned by the Company or any of its Affiliates).

B-66
<PAGE>

"RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this agreement.

"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time.

"SECURITY" has the meaning set forth in Section 2(1) of the Securities Act.

"SECURITY AGREEMENTS" shall mean that certain Dakota Growers Pasta Company
Security Agreement dated the 11th day of August securing the Company's
obligations under the Notes and that certain Primo Piatto, Inc. Security
Agreement dated the 11th day of August securing the Guarantor's obligations
under the Guaranty.

"SECURITY DOCUMENTS" means and includes the Guaranty Agreement and each
Collateral Document.

"SENIOR DEBT" means any Funded Debt of the Company which, by its terms, is
not subordinated to any other Debt of the Company.

"SENIOR FINANCIAL OFFICER" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.

"SUBSIDIARY" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to
a "Subsidiary" is a reference to a Subsidiary of the Company.

"SUBSIDIARY STOCK" means, with respect to any Person, the stock (or any
options or warrants to purchase stock or other Securities exchangeable for or
convertible into stock) of any Subsidiary of such Person.

"SWAPS" means, with respect to any Person, payment obligations with respect
to interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency. For the purposes of this Agreement, the amount of the obligation
under any Swap shall be the amount determined in respect thereof as of the end
of the then most recently ended fiscal quarter of such Person, based on the
assumption that such Swap had terminated at the end of such fiscal quarter, and
in making such determination, if any agreement relating to such Swap provides
for the netting of amounts payable by and to such Person thereunder or if any
such agreement provides for the simultaneous

B-67
<PAGE>

payment of amounts by and to such Person, then in each such case, the amount of
such obligation shall be the net amount so determined.

"TRANSFER" means, with respect to any Person, any transaction in which such
Person sells, conveys, transfers or leases (as lessor) any of its property,
including, without limitation, Subsidiary Stock. For purposes of determining the
application of the Net Proceeds Amount in respect of any Transfer, the Company
may designate any Transfer as one or more separate Transfers each yielding a
separate Net Proceeds Amount. In any such case, (a) the Disposition Value of
any property subject to each such separate Transfer and (b) the amount of
Consolidated Assets attributable to any property subject to each such separate
Transfer shall be determined by ratably allocating the aggregate Disposition
Value of, and the aggregate Consolidated Assets attributable to, all property
subject to all such separate Transfers to each such separate Transfer on a
proportionate basis.

"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one hundred
percent (100%) of all of the equity interests (except directors' qualifying
shares) and voting interests of which are owned by any one or more of the
Company and the Company's other Wholly-Owned Subsidiaries at such time.

B-68

<PAGE>

SUBSIDIARIES

JURISDICTION OF PERCENTAGE
SUBSIDIARY INCORPORATION OWNERSHIP

Primo Piatto, Inc. Minnesota 100%

SCHEDULE 5.4
(to Note Purchase Agreement)

<PAGE>

FINANCIAL STATEMENTS

1. Audited financials for each of the fiscal years ended July 31, 1993 through
July 31, 1997.

2. Financial statements set forth in the Company's 10-Q for the nine-month
period ended April 30, 1998.

SCHEDULE 5.5
(to Note Purchase Agreement)

DAKOTA GROWERS PASTA COMPANY

OUTSTANDING DEBT
JULY 30, 1998

INTEREST OUTSTANDING
RATE BALANCE

St. Paul Bank for Cooperatives*
<S> <C> <C>
Variable Rate Term 8.14% $4,899,007.58
Maturing 10/30/98 10.08% 3,500,000.00
Maturing 3/31/99 - 9/30/99 8.38% 2,000,000.00
Maturing 10/29/98 10.22% 3,500,000.00
Maturing 12/31/99 - 9/30/00 8.49% 2,000,000.00
Maturing 12/29/00 - 9/30/01 8.54% 3,000,000.00
Maturing 12/31/01 - 9/30/02 8.59% 2,000,000.00
Maturing 12/31/02 - 9/30/03 8.68% 6,000,000.00
Maturing 12/31/03 - 9/30/04 8.76% 5,000,000.00

* St. Paul Bank is lead bank, $8,996,856 held
by Bank of North Dakota and $9,627,900 held
by Farm Credit Services. Rates are
pre-patronage.

St. Paul Bank for Cooperatives

Variable Rate Seasonal** 7.75% 9,700,000.00
Variable Rate Term** 8.14% 16,000,000.00
Maturing 7/31/08 5.71% 12,000,000.00

** Rates are pre-patronage.

City of Carrington 4.00% 277,037.30

Northern Plains Electric 0.00% 50,000.00

Dakota Central Telecommunications 0.00% 50,000.00
--------------
Total Outstanding Debt $69,976,044.88
--------------
--------------
</TABLE>

SCHEDULE 5.15
(to Note Purchase Agreement)

<PAGE>

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE LAW, AND MAY NOT BE SOLD,
DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
(a) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR (b) SUCH TRANSACTION IS
EXEMPT FROM REGISTRATION UNDER THE ACT.

[FORM OF SERIES A NOTE]

DAKOTA GROWERS PASTA COMPANY

7.04% SENIOR SECURED GUARANTEED NOTE, SERIES A, DUE AUGUST 1, 2008

No. AR- [Date]
$[________] PPN[________]

FOR VALUE RECEIVED, the undersigned, DAKOTA GROWERS PASTA COMPANY (herein
called the "COMPANY"), a corporation organized as an agricultural cooperative
organized and existing under the laws of the State of North Dakota, hereby
promises to pay to [________________], or registered assigns, the principal sum
of [________________] DOLLARS on August 1, 2008, with interest (computed on the
basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance
thereof at the rate of 7.04% per annum from the date hereof, payable
semiannually, on the first day of February and August in each year, commencing
with the February 1 or August 1 next succeeding the date hereof, until the
principal hereof shall have become due and payable, and (b) to the extent
permitted by law on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
Make-Whole Amount (as defined in the Note Purchase Agreements referred to
below), payable semiannually as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) 9.04% or (ii) 2% over the rate of interest publicly announced by
St. Paul Bank for Cooperatives from time to time in St. Paul, Minnesota as its
"base" or "prime" rate.

Payments of principal of, interest on and any Make-Whole Amount with
respect to this Series A Note are to be made in lawful money of the United
States of America at the principal office of the Company in Carrington, North
Dakota or at such other place as the Company shall have designated by written
notice to the holder of this Note as provided in the Note Purchase Agreements
referred to below.

This Series A Note is one of a series of Senior Secured Guaranteed Notes
(herein called the "SERIES A NOTES") issued (along with the 7.14% Senior Secured
Guaranteed Notes, Series B, due August 1, 2010) pursuant to separate Note
Purchase Agreements, dated as of July 15, 1998 (as from time to time amended,
the "NOTE PURCHASE AGREEMENTS"), between the Company and the respective
Purchasers named therein and is entitled to the benefits thereof. This Note is
secured

EXHIBIT 1-A
(to Note Purchase Agreement)

<PAGE>

by the Security Documents (as such term is defined in the Note Purchase
Agreements) and reference is hereby made to the Security Documents for the terms
and conditions governing such security. Each holder of this Series A Note will
be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to
have made the representation set forth in Section 6.2 of the Note Purchase
Agreements PROVIDED that such holder may (in reliance upon information provided
by the Company, which shall not be unreasonably withheld), make a representation
to the effect that the purchase by such holder of any Series A Note will not
constitute a non-exempt prohibited transaction under Section 406(a) of ERISA.

This Series A Note is a registered Series A Note and, as provided in the
Note Purchase Agreements, upon surrender of this Series A Note for registration
of transfer, duly endorsed, or accompanied by a written instrument of transfer
duly executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Series A Note for a like principal amount will be
issued to, and registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may treat the person in
whose name this Series A Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes, and the Company will not be
affected by any notice to the contrary.

The Company will make required prepayments of principal on the dates and in
the amounts specified in the Note Purchase Agreements. This Series A Note is
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreements, but not
otherwise.

If an Event of Default, as defined in the Note Purchase Agreements, occurs
and is continuing, the principal of this Series A Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.

This Series A Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of North
Dakota excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.

DAKOTA GROWERS PASTA COMPANY

By
[Title]

E-1-A-73

<PAGE>

[FORM OF SERIES B NOTE]

DAKOTA GROWERS PASTA COMPANY

7.14% SENIOR SECURED GUARANTEED NOTE, SERIES B, DUE AUGUST 1, 2010

No. BR- [Date]
$[_________] PPN[________]

FOR VALUE RECEIVED, the undersigned, DAKOTA GROWERS PASTA COMPANY (herein
called the "COMPANY"), a corporation organized as an agricultural cooperative
organized and existing under the laws of the State of North Dakota, hereby
promises to pay to [________________], or registered assigns, the principal sum
of [________________] DOLLARS on August 1, 2010, with interest (computed on the
basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance
thereof at the rate of 7.14% per annum from the date hereof, payable
semiannually, on the first day of February and August in each year, commencing
with the February 1 or August 1 next succeeding the date hereof, until the
principal hereof shall have become due and payable, and (b) to the extent
permitted by law on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
Make-Whole Amount (as defined in the Note Purchase Agreements referred to
below), payable semiannually as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) 9.14% or (ii) 2% over the rate of interest publicly announced by
St. Paul Bank for Cooperatives from time to time in St. Paul, Minnesota as its
"base" or "prime" rate.

Payments of principal of, interest on and any Make-Whole Amount with
respect to this Series B Note are to be made in lawful money of the United
States of America at the principal office of the Company in Carrington, North
Dakota or at such other place as the Company shall have designated by written
notice to the holder of this Note as provided in the Note Purchase Agreements
referred to below.

This Series B Note is one of a series of Senior Secured Guaranteed Notes
(herein called the "SERIES B NOTES") issued (along with the 7.04% Senior Secured
Guaranteed Notes, Series A, due August 1, 2008) pursuant to separate Note
Purchase Agreements, dated as of July 15, 1998 (as from time to time amended,
the "NOTE PURCHASE AGREEMENTS"), between the Company and the respective
Purchasers named therein and is entitled to the benefits thereof. This Note is
secured

EXHIBIT 1-B
(to Note Purchase Agreement)

<PAGE>

by the Security Documents (as such term is defined in the Note Purchase
Agreements) and reference is hereby made to the Security Documents for the terms
and conditions governing such security. Each holder of this Series B Note will
be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to
have made the representation set forth in Section 6.2 of the Note Purchase
Agreements PROVIDED that such holder may (in reliance upon information provided
by the Company, which shall not be unreasonably withheld), make a representation
to the effect that the purchase by such holder of any Series B Note will not
constitute a non-exempt prohibited transaction under Section 406(a) of ERISA.

This Series B Note is a registered Series B Note and, as provided in the
Note Purchase Agreements, upon surrender of this Series B Note for registration
of transfer, duly endorsed, or accompanied by a written instrument of transfer
duly executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Series B Note for a like principal amount will be
issued to, and registered in the name of, the transferee. Prior to due
presentment for registration of transfer, the Company may treat the person in
whose name this Series B Note is registered as the owner hereof for the purpose
of receiving payment and for all other purposes, and the Company will not be
affected by any notice to the contrary.

The Company will make required prepayments of principal on the dates and in
the amounts specified in the Note Purchase Agreements. This Series B Note is
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreements, but not
otherwise.

If an Event of Default, as defined in the Note Purchase Agreements, occurs
and is continuing, the principal of this Series B Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.

This Series B Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of North
Dakota excluding choice-of-law principles of the law of such State that would
require the application of the laws of a jurisdiction other than such State.

DAKOTA GROWERS PASTA COMPANY

By
[Title]

E-1-B-75

<PAGE>

FORM OF OPINION OF COUNSEL
TO THE COMPANY AND THE GUARANTOR

The closing opinion of Fabian Noack, Esq., Counsel for the Company and the
Guarantor which is called for by Section 4.4(a) of the Note Purchase Agreements,
shall be dated the date of the Closing and addressed to you and each Other
Purchaser, shall be satisfactory in scope and form to you and each Other
Purchaser and shall be to the effect that:

1. The Company is a corporation, duly incorporated, validly existing
and in good standing under the laws of the State of North Dakota, has the
corporate power and the corporate authority to execute and perform the
Financing Agreements to which it is a party and to issue the Notes and has
the full corporate power and the corporate authority to conduct the
activities in which it is now engaged and is duly licensed or qualified and
is in good standing as a foreign corporation in each jurisdiction in which
the character of the Properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification necessary.

2. Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation
and is duly licensed or qualified and is in good standing in each
jurisdiction in which the character of the Properties owned or leased by it
or the nature of the business transacted by it makes such licensing or
qualification necessary and all of the issued and outstanding shares of
capital stock of each such Subsidiary have been duly issued, are fully paid
and non-assessable and are owned by the Company, by one or more
Subsidiaries, or by the Company and one or more Subsidiaries.

3. The Guarantor is a corporation, duly incorporated, validly
existing and in good standing under the laws of the State of Minnesota, has
the corporate power and the corporate authority to execute and perform each
Financing Agreement to which it is a party and has the full corporate power
and the corporate authority to conduct the activities in which it is now
engaged and is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction in which the character of the
Properties owned or leased by it or the nature of the business transacted
by it makes such licensing or qualification necessary.

4. The issuance and sale of the Notes and the execution, delivery
and performance by the Company of the Financing Agreements do not conflict
with or result in any breach of any of the provisions of or constitute a
default under or result in the creation or imposition of any Lien upon any
of the property of the Company pursuant to the provisions of (i) any
indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease or the Restated Articles of Association or the By-laws of the Company
or any agreement or other instrument known to such counsel to which the
Company is a party or by which the Company or any of its Properties may be
bound or affected, (ii) any order, judgment, decree or ruling of any court,
arbitration board or Governmental

EXHIBIT 4.4(a)
(to Note Purchase Agreement)

<PAGE>

Authority applicable to the Company, or (iii) any statute or other rule
or regulation of any Governmental Authority applicable to the Company.

5. There are no proceedings pending or, to the knowledge of such
counsel, threatened against or affecting the Company or any Subsidiary in
any court or before any Governmental Authority questioning the validity of
the Financing Agreements.

6. The Financing Agreements have been duly authorized by all
necessary corporate action on the part of each Obligor which is a party
thereto, have been duly executed and delivered by each Obligor which is a
party thereto and constitute the legal, valid and binding contracts of each
Obligor which is a party thereto enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar
laws affecting creditors' rights generally, and general principles of
equity (regardless of whether the application of such principles is
considered in a proceeding in equity or at law).

7. The Notes have been duly authorized by all necessary corporate
action on the part of the Company, have been duly executed and delivered by
the Company and constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent conveyance or similar laws affecting creditors'
rights generally, and general principles of equity (regardless of whether
the application of such principles is considered in a proceeding in equity
or at law).

8. No approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any Governmental Authority,
is necessary in connection with the execution, delivery or performance by
the Company or the Guarantor of the Financing Agreements or the Notes.

9. The Mortgages and the Security Agreements, or financing states
relative thereto, have been recorded or filed for record in all pubic
offices, if any, wherein such filing or recordation is necessary to perfect
the lien thereof against creditors of and purchasers from the Company.
Such Mortgages and Security Agreement constitute a valid lien on the
Collateral specifically described in the Granting Clauses thereof.

10. Neither the Company nor any Subsidiary is an "investment
company", or a company "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended.

11. The issuance, sale and delivery of the Notes and the Guaranty
Agreement under the circumstances contemplated by the Financing Agreements
do not, under existing law, require the registration of the Notes or the
Guaranty Agreement under the Securities Act of 1933, as amended, or the
qualification of an indenture under the Trust Indenture Act of 1939, as
amended.

E-4.4(a)-77

<PAGE>

The opinion of Fabian Noack, Esq., shall cover such other matters relating
to the sale of the Notes as you or any Other Purchaser may reasonably request.
Such opinion shall permit reliance by subsequent holders of the Notes. With
respect to matters of fact on which such opinion is based, such counsel shall be
entitled to rely on appropriate certificates of public officials and officers of
the Company and the Guarantor. This law firm did not prepare or solicit
investors for the Private Placement Memorandum distributed by SPP Hambro & Co.
and St. Paul Bank for Cooperatives in connection with the Notes and makes no
warranty as to the accuracy or completeness of the information contained
therein.

E-4.4(a)-77

<PAGE>

FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS

The closing opinion of Chapman and Cutler, special counsel to you and the
Other Purchasers, called for by Section 4.4(a) of the Note Purchase Agreements,
shall be dated the date of the Closing and addressed to you and the Other
Purchasers, shall be satisfactory in form and substance to you and the Other
Purchasers and shall be to the effect that:

1. The Company is a corporation validly existing and in good
standing under the laws of the State of North Dakota and has the corporate
power and the corporate authority to execute and deliver the Note Purchase
Agreements and to issue the Notes.

2. Each Note Purchase Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been duly
executed and delivered by the Company and constitutes the legal, valid and
binding contract of the Company enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance and similar laws
affecting creditors' rights generally, and general principles of equity
(regardless of whether the application of such principles is considered in
a proceeding in equity or at law).

3. The Notes have been duly authorized by all necessary corporate
action on the part of the Company, and the Notes being delivered on the
date hereof have been duly executed and delivered by the Company and
constitute the legal, valid and binding obligations of the Company
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting creditors'
rights generally, and general principles of equity (regardless of whether
the application of such principles is considered in a proceeding in equity
or at law).

4. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Purchase Agreements do not, under
existing law, require the registration of the Notes under the Securities
Act of 1933, as amended, or the qualification of an indenture under the
Trust Indenture Act of 1939, as amended.

The opinion of Chapman and Cutler shall also state that the opinion of
Fabian Noack, Esq. is satisfactory in scope and form to Chapman and Cutler and
that, in their opinion, you and the Other Purchasers are justified in relying
thereon.

In rendering the opinion set forth in paragraph 1 above, Chapman and Cutler
may rely, as to matters referred to in paragraph 1, solely upon an examination
of the Restated Articles of Association certified by, a certificate of good
standing of the Company from, the Secretary of State of the State of North
Dakota, and the By-laws of the Company.

With respect to matters of fact upon which such opinion is based, Chapman
and Cutler may rely on appropriate certificates of public officials and officers
of the Company and upon

ADDENDUM A
(to Note Purchase Agreement)

<PAGE>

representations of the Company and you and the Other Purchasers delivered in
connection with the issuance and sale of the Notes.

The opinion of Chapman and Cutler is limited to the laws of the State of
Illinois and the Federal laws of the United States.

-80-

<PAGE>

380313 Date Approved: 07/23/98

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

ST. PAUL BANK FOR COOPERATIVES

LOAN AGREEMENT

Loan Agreement, Note Nos. 29180 / 39180 / 33061 / 35061 is hereby further
amended in its entirety, to read as follows:

Borrower: Application No. S-26918

DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA

New Loan
--------

$12,000,000.00 - Letter of Credit Commitment
<TABLE>
<CAPTION>
Present Loans Transferred Loan
------------- ----------------
<S> <C>
$11,000,000.00 - Seasonal Loan
28,000,000.00 - Term Loan $12,000,000.00 - from Term Loan,
17,724,007.58 - Term Loan Note No. 39180 to
14,175,000.00 - Construction Term Loan Term Loan, Note
------------------ No. 39181NP
$70,899,007.58
</TABLE>

Reinstated Loan
---------------

$1,950,000.00 - Construction Term Loan
<TABLE>
<CAPTION>
Total Loans
-----------
<S> <C>
$11,000,000.00 - Seasonal Loan, Note No. 29180
16,000,000.00 - Term Loan, Note No. 39181
12,000,000.00 - Term Loan, Note No. 39181NP*
[12,000,000.00] - Letter of Credit Commitment, Note No.
39182NP*/**
17,724,007.58 - Term Loan, Note No. 33061
16,125,000.00 - Construction Term Loan, Note No. 35062
--------------
$72,849,007.58 - Total
</TABLE>

* NP indicates a non-patronage note.
** Note No. 39182NP will only be used to repay Note No. 39181NP. The maximum
total indebtedness hereunder will not exceed $72,849,007.58.

(29180 / 39181 / 39181NP / 39182NP / 33061 / 35062) Page 1

<PAGE>

The St. Paul Bank for Cooperatives (the "Bank") and Borrower agree to the above
loans (the "Loans") to the Borrower. The Borrower's present indebtedness to the
Bank and/or commitments outstanding (entitled Present Loans in the above
heading) are consolidated and are made subject to all the terms and conditions
of this loan agreement.

I. PURPOSE
The proceeds of the Loans shall be used as follows:

A. The Seasonal Loan shall be used for general operating purposes.

B. Term Loans, Note No. 39181 and 39181NP, shall be used to refinance
present Term Loan, Note No. 39180.

C. Letter of Credit Commitment, Note No. 39182NP shall be used in the
event that the Bank of North Dakota draws on the letter of credit in
its favor in accordance with the terms and conditions thereof.

D. Term Loan, Note No. 33061, was used to finance the construction of the
pasta plant.

E. Construction Term Loan, Note No. 35062, shall be used to finance the
mill and pasta line expansion (the "Project").

II. NOTES AND SECURITY
Advances under this loan agreement, together with any existing indebtedness
of the Borrower to the Bank, shall be evidenced by a promissory note or
notes acceptable to the Bank, and shall be secured to the extent of all
collateral presently held by the Bank; including but not limited to, all
real estate mortgages and security agreements; and by an amendment of the
continuing guaranty dated February 23, 1998 executed by Primo Piatto, Inc.
(hereinafter called "PPI") in form acceptable to the Bank.

All property under lien to the Bank as security for the Loans shall be
collateral for all indebtedness of the Borrower to the Bank.

III. LIMITATION ON ADVANCES
A. The total Seasonal Loan outstanding under this or any loan agreement
between the Bank and the Borrower shall not exceed the amount shown in
the above heading.

B. Advances on the Seasonal Loan shall not exceed the sum of the
following collateral values based on collateral reports to be
submitted monthly (or more often at Borrower's discretion) in such
form as required by the Bank:

1. Eighty percent (80%) of accounts receivable acceptable to the
Bank and not older than forty-five (45) days from the date of
invoice.

2. Sixty-five percent (65%) of the net market value (market value
less selling expenses) of owned inventories of grain, semolina,
flours, millfeeds, and finished pasta.

3. Fifty percent (50%) of supply inventories.

C. Advances on Letter of Credit Commitment, Note No. 39182NP shall
support a letter of credit issued by the Bank in favor of Bank of
North Dakota following submission of satisfactory letter of credit
application. The letter of credit shall be issued in an amount not to
exceed $12,000,000.

D. Construction progress reports shall be submitted to the Bank prior to
each advance being made on the Construction Term Loan, Note No. 35062.
Construction progress reports shall include:

1. A draw request;

<PAGE>

2. Inspection reports; and

3. Evidence that mechanics' and materialmen's lien waivers have been
obtained for all work done on, and all materials supplied to, the
Project which were paid for pursuant to the previous disbursement
request.

IV. INTEREST
A. All Seasonal Loan balances hereunder shall bear interest at a variable
rate of interest per annum (which is 7.69% as of July 23, 1998), which
rate may vary from time to time based on the Bank's cost of funds (the
"Applicable Rate"); provided, however, the fixed amounts (as defined
in the "FIXED RATE SEASONAL ADVANCES AND MATURITIES" section of this
loan agreement) shall bear such rates of interest as described in the
statements. Variable rate balances (i.e., balances other than fixed
amounts) under this Paragraph A shall be subject to Paragraph D of
this Section IV commencing August 1, 1998.

B. Through July 31, 1998, all outstanding Term Loan balances, excluding
Note Nos. 39181NP and 39182NP, shall bear interest at a variable rate
of interest per annum (which is 8.14% as of July 23, 1998), which rate
may vary from time to time based on the Bank's cost of funds;
provided, however, the fixed amounts (as defined in the "CUSTOMER
MANAGED FIXED RATE TERM ADVANCES AND MATURITIES" section of this loan
agreement) shall bear such rates of interest as described in the
statements.

C. Commencing August 1, 1998, all outstanding Term Loan balances,
excluding Note Nos. 39181NP and 39182NP, shall bear interest at a
variable rate of interest per annum (which is 8.04% as of July 23,
1998); which rate may vary from time to time based on the Bank's cost
of funds (the "Applicable Rate"); provided, however, the fixed amounts
(as defined in the "CUSTOMER MANAGED FIXED RATE TERM ADVANCES AND
MATURITIES" section of this loan agreement) shall bear such rates of
interest as described in the statements. Variable rate balances
(i.e., balances other than fixed amounts) under this Paragraph C shall
be subject to Paragraph D of this Section IV commencing August 1,
1998.

D. This paragraph applies to (and only to) variable rate Seasonal and
Term Loan balances (excluding balances under Note Nos. 39181NP and
39182NP) commencing August 1, 1998. During any time that the Borrower
is not in compliance with the current ratio and debt service coverage
ratio conditions (as defined in Section IX., paragraphs D and F,
respectively, and measured at the times specified therein), all such
variable rate balances shall bear interest at a rate *** basis points
above the respective Applicable Rate. During any time that the
Borrower is in compliance with such current ratio and debt service
coverage ratio conditions, the interest rate shall be increased or
decreased (or, as applicable, not changed) in accordance with the
following Incentive Interest Rate Matrix based on Net Ownership Ratio
(as defined in Section IX, Paragraph E and measured at the times
specified therein):

[* - Confidential treatment requested.]

<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------
INCENTIVE INTEREST RATE MATRIX

----------------------------------------------------------------------
NET OWNERSHIP INCREASE / DECREASE CHANGE TO INTEREST RATE
RATIO TO INTEREST RATE IN BASIS POINTS
----------------------------------------------------------------------
<S> <C> <C>
Less than 40% ***** ***

----------------------------------------------------------------------
Less than ***% and ***** ***
greater than or equal
to ***%

----------------------------------------------------------------------
Greater than or equal ***** ***
to ***%

----------------------------------------------------------------------
</TABLE>

The interest rate change shall occur within one month after the Bank's
receipt of the monthly compliance report.

A. The interest rate on Term Loan, Note No. 39181NP shall be fixed to
maturity at 25 basis points (0.25%) over the ten (10) year U.S.
Constant Maturity Treasury Rate, as published in THE WALL STREET
JOURNAL Midwest Edition, for the previous day. The interest rate on
Term Loan, Note No. 39181NP, shall not be subject to Paragraph D of
this Section IV.

B. Any outstanding draws under the Letter of Credit Commitment, Note No.
39182NP, shall bear interest at the variable rate per annum equal to
the highest prime rate, as published in THE WALL STREET JOURNAL Money
Rate section, plus 200 basis points (2.0%). Interest rate changes
will take place within seven business days from the time of
publication in THE WALL STREET JOURNAL. The interest rate on Letter
of Credit Commitment, Note No. 39182NP shall not be subject to
Paragraph D of this Section IV.

C. Interest on the Loans shall be payable on the last day of each
calendar quarter or as the Bank may specify.

V. FEES

[* - Confidential treatment requested.]

<PAGE>

A. The Term Loans, except for Letter of Credit Commitment, Note No.
39182NP, shall be subject to an agency fee of 10 basis points (0.10%)
on an annualized basis, on the daily outstanding balances and
commitments payable on the last day of each calendar quarter, in
arrears.

B. The Letter of Credit Commitment, Note No. 39182NP shall be subject to
a commitment fee of 62.5 basis points (0.625%) on an annualized
basis, on the daily outstanding commitments payable on the last day
of each calendar quarter, in arrears. This commitment fee shall be on
a non-patronage basis.

C. Borrower shall pay an origination fee of $8,000 payable on or before
August 1, 1998.

VI. FIXED RATE SEASONAL ADVANCES AND MATURITIES
In accordance with and subject to the Bank's Fixed Rate Seasonal Loan
Program, and subject to the Bank's overall program funding limitations, it
is agreed the interest rate may be fixed on any seasonal loan indebtedness
(the "fixed amount") made under this loan agreement as follows:

A. The minimum fixed amount shall be $100,000.

B. Each fixed amount and each selected pricing maturity date will be
treated as a separate indebtedness for interest rate designation and
interest billing purposes.

C. Fixed amount pricing maturities shall not be less than 15 days nor
greater than 180 days from the day of advance to be based on the
maturity selection of the Borrower; however, all fixed amounts shall
have pricing maturities no later than July 31, 1999.

D. The Borrower may receive same day interest rate quotes if a firm
request is placed and accepted by the Bank before 12:01 p.m. (Central
Time) on any business day. A firm request is one placed by telephone
or in writing by an authorized representative of the Borrower.

E. Fixed amounts shall be automatically converted to the variable rate
seasonal loan at maturity.

F. Fixed amounts cannot be repaid or repriced by the Borrower prior to
their respective pricing maturity dates without being subject to
prepayment penalties. Such penalties shall be determined according to
a methodology specified by the Bank which preserves the Bank's yield
on the fixed amount prepaid or repriced and which is based upon the
difference between the Bank's cost of like funds to pricing maturity
at the time of prepayment and the existing fixed rate on the fixed
amount.

G. Each fixed amount shall be summarized in the Daily Activity Statement
(the "statement") to the Borrower. Each statement shall reference and
confirm at least the following:

1. Note No. 29180.

2. The fixed amount and its Contract No.

3. The rate of interest.

4. The effective date.

5. The pricing maturity date.

H. The Borrower agrees that the statement shall verify the understanding
reached by the parties, and that the Borrower shall be bound by the
statement without its signature; provided, however, if there is an
error reflected in the statement, the Borrower shall notify

<PAGE>

the Bank of the error within five days after receipt of the statement
and an appropriate correction will be made.

I. If there is a question on the interest rate applicable to the fixed
amount, the rate as established by the Bank for such amounts shall be
controlling.

J. Section IV., paragraph D. shall not apply to this Section VI., "FIXED
RATE SEASONAL ADVANCES AND MATURITIES."

VII. CUSTOMER MANAGED FIXED RATE TERM ADVANCES AND MATURITIES
In accordance with and subject to the Bank's Customer Managed Fixed Rate
Term Program and subject to the Bank's overall program funding limitations,
it is agreed the interest rate may be fixed on any term loan indebtedness
(the "fixed amount") under this loan agreement as follows:

A. The minimum fixed amount shall be $1,000,000.

B. Each fixed amount and each selected pricing maturity date shall be
treated as a separate indebtedness for interest rate designation and
interest billing purposes.

C. Fixed amount pricing maturities shall be for a minimum maturity of 60
days and a maximum of seven years.

D. The Borrower shall have indebtedness under the variable rate term
interest rate program or priced maturing fixed amounts against which
to apply scheduled term loan payments as set forth in the "REPAYMENT"
section of this loan agreement.

E. The Borrower's selection of loan interest rate quotes and pricing
maturities must be communicated to the Bank by 2:00 p.m. (Central
Time) on the day prior to the fixed amount advance. If this selection
deadline is not met, maturing fixed amounts shall automatically
convert to the variable rate term loan.

G. Each fixed amount shall be summarized in the Daily Activity Statement
(the "statement") to the Borrower. Each statement shall reference and
confirm the following:

1. Note Nos. 39181 or 33061 or 35062.

2. The fixed amount and its Contract No.

3. The rate of interest.

4. The effective date.

5. The pricing maturity date.

<PAGE>

I. If there is a question on the interest rate applicable to the fixed
amount, the rate as established by the Bank for such amounts shall be
controlling.

J. Section IV., paragraph D. shall not apply to this Section VII.,
"CUSTOMER MANAGED FIXED RATE TERM ADVANCES AND MATURITIES."

VIII.REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants that:

A. The Borrower and PPI are duly organized, existing and in good standing
under the laws of North Dakota and Minnesota, respectively. They have
the power to own their properties and to carry on their business as
now being conducted. They are duly qualified to do business and are
in good standing in each jurisdiction in which the transaction of
their business makes such qualification necessary, except where the
failure to so qualify would not have a material adverse effect on
their business, operations, or properties, taken as a whole.

B. The Borrower has full power and authority to execute, deliver, and
perform under the terms of this loan agreement and the Borrower and
PPI each has full power and authority to execute, deliver and perform
under the terms of the notes, the security agreements, mortgages, and
guaranty (collectively referred to as the "Loan and Security
Documents") and all other documents and agreements contemplated by
this loan agreement, all of which have been duly authorized by each
respective party.

C. All consents or approvals of any person which are necessary for, or
are required as a condition of, the execution, delivery, and
performance under the terms of the Loan and Security Documents have
been obtained.

D. The Loan and Security Documents each constitutes the legal, valid, and
binding obligation of the Borrower and PPI, enforceable against the
Borrower and PPI, in accordance with its respective terms.

E. To the best of the Borrower's knowledge, there are no pending legal or
governmental actions, proceedings, or investigations to which the
Borrower or PPI is a party, or to which any property of the Borrower
or PPI is subject, which might result in any material adverse change
in the business or financial condition of the Borrower or PPI, and to
the best of the Borrower's knowledge, no such actions or proceedings
are threatened or contemplated by governmental authorities or any
other person.

F. There is no provision of the Borrower's articles of incorporation or
bylaws and, to the best of the Borrower's knowledge after due inquiry,
no provision of any existing real estate mortgage, indenture, lease,
security agreement, contract, note, instrument, or any other agreement
or document binding on the Borrower or PPI, or affecting their
properties, which would conflict with or in any way prevent the
execution, delivery, or performance of the Loan and Security Documents
by the Borrower or PPI.

G. To the best of the Borrower's knowledge, the Borrower and PPI each has
duly and lawfully obtained, and is duly and lawfully maintaining in
effect, all material, licenses, certificates, permits, qualifications,
authorizations, and approvals which are required or necessary for the
operation of its business, whether federal, state, or local.

H. To the best of the Borrower's knowledge, neither the Borrower nor PPI
has (1) any direct or contingent liability for any obligation of any
other person and (2) any obligation to make a loan or advance to any
person or to own, purchase, or acquire any stock, obligations, or
securities of, or any other interests in, or to make any capital
contribution to, any person.

IX. FINANCIAL CONDITIONS
While this loan agreement is in effect, the Borrower agrees to comply with
the following financial conditions:

<PAGE>

A. CASH PATRONAGE: The Borrower will pay cash patronage in amounts
necessary to qualify its patronage refunds as a qualified patronage
dividend as defined in the Internal Revenue Code.

B. DIVIDENDS: The Borrower will not pay cash dividends on capital stock
in excess of minimum requirements, as stated in the Borrower's by-laws
and/or stock certificates, without the prior written consent of the
Bank, which consent will not be unreasonably withheld.

C. REVOLVEMENT OF EQUITIES: The Borrower may not revolve, or otherwise
pay out, any owner equity if such action would cause one or more of
"FINANCIAL CONDITIONS" D., E., or F. under this loan agreement to be
in a noncompliance position, without the prior written consent of the
Bank, which consent will not be unreasonably withheld.

D. CURRENT RATIO: The Borrower will maintain a current ratio (current
assets divided by current liabilities) of not less than 1.35:1,
measured at each month end.

E. NET OWNERSHIP RATIO: The Borrower will maintain a net ownership ratio
(total equity divided by the sum of working capital [current assets
minus current liabilities] plus net fixed assets plus principal on
capitalized and operating leases plus other assets) of not less than
forty percent (40%), measured at each month end. Working capital may
be adjusted to reflect a current ratio of 1.35:1.

F. DEBT SERVICE COVERAGE RATIO: The Borrower will maintain a debt
service coverage ratio of not less than 1.25:1, measured for the
previous twelve month period ending July 31 of each year. The debt
service coverage ratio shall be calculated as follows:

After-tax net income

Add: Depreciation and Amortization Expense
Less: Deferred Patronage Received
Cash Patronage Declared Payable
Extraordinary Gains
Equal to: Adjusted Income from Operations
Divided by: Current Maturities of Long-Term Liabilities
(including principal on capitalized and operating leases)
Equals: Debt Service Coverage Ratio

X. GENERAL CONDITIONS
While this loan agreement is in effect, the Borrower agrees to comply with
the following conditions:

A. ELIGIBILITY STATUS: The Borrower will maintain its status as an
eligible borrower as defined in the Farm Credit Act of 1971, as
amended (12 U.S.C. 2129).

B. STOCK INVESTMENT: The Borrower will purchase equities of the Bank in
such amounts as prescribed by the Bank's capital plan and any
amendments to the plan.

C. NON-PATRONAGE LOANS: Term Loan, Note No. 39181NP and Letter of Credit
Commitment, Note No. 39182NP shall be non-patronage loans. The
Borrower foregoes any opportunity to purchase Bank equities or receive
allocations of patronage earnings on Term Loan, Note No. 39181NP and
Letter of Credit Commitment, Note No. 39182NP.

D. INSURANCE: The Borrower and PPI will maintain:

1. Business and property insurance with financially sound insurers,
in amounts sufficient to protect the Loans.

<PAGE>

2. Flood insurance as may be required by the Bank in accordance with
applicable law including, but not limited to, regulations of the
Farm Credit Administration.

3. All appropriate grain licenses and all required grain buyers' and
warehouse bonds.

4. All-risk builder's risk insurance during the construction of the
Project, in an amount equal to 100% of the replacement cost of
the Project, in accordance with industry standards, providing
all-risk coverage on the Project and materials stored on the
Property and elsewhere, and including the perils of collapse,
damage resulting from error in design or faulty workmanship or
materials, or water damage.

E. FINANCIAL INFORMATION: The Borrower will furnish the Bank audited
annual financial statements prepared in accordance with Generally
Accepted Accounting Principles (GAAP), and acceptable auditors'
reports, within 120 days after the end of each fiscal year, annual
operating budgets within 60 days after the end of each fiscal year;
monthly financial statements prepared in accordance with GAAP within
30 days after the end of each month, and such other information as the
Bank may request relative to the Borrower's business, and permit such
examination of its books and records as the Bank may specify. The
Borrower also agrees that parties preparing such financial information
are authorized to release to the Bank such financial information as
the Bank may request.

F. COLLATERAL REPORTS: The Borrower will furnish the Bank collateral
reports to be submitted in such form and frequency as required by the
Bank.

G. NEGATIVE PLEDGE: The Borrower will not mortgage, pledge, assign, or
grant security interests in any assets to any other party without the
prior written consent of the Bank, which consent will not be
unreasonably withheld.

H. CORPORATE DOCUMENTS: The Borrower will not amend its articles of
incorporation, by-laws, growers agreement, nor its grain delivery
payment policies without the consent of the Bank, which consent will
not be unreasonably withheld.

I. CONSTRUCTION PROGRESS REPORTS: The Borrower will furnish the Bank
construction progress reports (including draw requests, inspection
reports, and lien waivers) with each Construction Term Loan advance
request.

J. ENVIRONMENTAL REPRESENTATIONS, CONDITIONS, AND INDEMNITY CLAUSE:
Except as disclosed in writing to the Bank, the Borrower and PPI
represents and agrees to the following:

1. HAZARDOUS MATERIAL NOTICE: The Borrower represents that it has
not received a notice from any governmental agency or other
persons nor is there any present or threatened suit,
investigation, or other proceeding, with regard to Hazardous
Materials (defined in paragraph 7 below) on, in, or affecting its
owned or leased property. It shall immediately give the Bank
oral and written notice if it receives such a notice.

2. NO VIOLATION OF ENVIRONMENTAL LAWS: The Borrower has not and will
not violate any federal, state, or local environmental laws
relating to or affecting its owned or leased property, which
violation would have a material affect on the Borrower's business
or materially affects the value of the collateral.

3. NO RELEASES OF HAZARDOUS MATERIAL: There has been no release, nor
shall the Borrower permit any release, of such nature requiring
notification to proper authorities of any Hazardous Material onto
the Borrower's owned or leased property.

4. STORAGE TANK REGISTERED; NO LEAKS: All above ground and
underground storage tanks have been duly registered with all
applicable federal, state and local government authorities. The
Borrower has no knowledge of any leaks from any of its above
ground or underground storage tanks.

<PAGE>

5. INVESTIGATION OF RELEASED HAZARDOUS MATERIALS: If there is a
suspected release of Hazardous Materials, the Borrower shall, at
its own expense conduct all investigations, testing, and other
actions, including an environmental audit made at the Bank's
request, necessary to determine the extent (if any) of the
release of Hazardous Materials and to clean up and remove all
Hazardous Material in accordance with environmental laws.

6. INDEMNITY: The Borrower agrees to indemnify, hold harmless, and
defend the Bank against all claims of whatever kind (including
attorneys', consultants', and experts' fees) paid or asserted
against the Bank as a direct result of the Borrower's violation
of any environmental law. This indemnity shall continue for the
benefit of the Bank after the termination of this loan agreement
or other loan or security documents.

7. DEFINITION: Hazardous Material is defined as any toxic,
radioactive, or hazardous substance, material, waste, pollutant,
emission, or contaminant, including but not limited to: (a)
asbestos, (b) urea formaldehyde, (c) the group of organic
compounds known as polychlorinated biphenyls (PCBs), (d) any
petroleum product and byproduct including but not limited to
gasoline, fuel oil, crude oil, and the various constituents of
such products, and (e) pesticides, fertilizers, and other
agricultural chemicals.

XI. REPAYMENT
The indebtedness arising from the Loans shall be repaid as follows:

A. The Seasonal Loan, Note No. 29180, of not to exceed $11,000,000 shall
mature on January 31, 1999; provided, however, the Borrower shall make
such payments from time to time as may be required to maintain the
loan within the limits set forth in the "LIMITATION ON ADVANCES"
section of this loan agreement; provided further, any balances
outstanding under the fixed rate seasonal loan provisions shall mature
as specified in the statement. Any outstanding fixed amounts as of
January 31, 1999 shall be repaid no later than July 31, 1999.

B. The Term Loan, Note No. 39181, of $16,000,000 shall be repaid by
quarterly principal payments of One Million Dollars ($1,000,000) each,
to be remitted to the Bank on or before March 31, June 30, September
30, and December 31 of each year; provided, however, that if the
Borrower is not in default, it shall not be required to make payments
that would accelerate the repayment of fixed interest rate balances.
All outstanding balances shall be repaid by September 30, 2005.

C. The new Term Loan, Note No. 39181NP, of $12,000,000, shall be repaid
by annual principal payments of One Million Two Hundred Thousand
Dollars ($1,200,000) each, to be remitted to the Bank on or before
September 30 of each year, commencing on September 30, 1999. All
outstanding balances shall be repaid by September 30, 2008.

D. Advances made in support of Letter of Credit Commitment, Note No.
39182NP, of not to exceed $12,000,000, shall be payable on demand.

E. The present Term Loan, Note No. 33061, of $17,724,007.58 shall be
repaid by quarterly principal payments of Six Hundred Eighty-Five
Thousand Dollars ($685,000) each, to be remitted to the Bank on or
before March 31, June 30, September 30, and December 31 of each year;
provided, however, that if the Borrower is not in default, it shall
not be required to make payments that would accelerate the repayment
of fixed interest rate balances. All outstanding balances shall be
repaid by December 31, 2004.

F. The present and reinstated Construction Term Loan, Note No. 35062, of
$16,125,000 shall be repaid by quarterly principal payments of Six
Hundred Twenty-Five Thousand Dollars ($625,000) each, to be remitted
to the Bank on or before March 31, June 30, September 30, and December
31 of each year; provided, however, that if the Borrower is not in
default, it shall

<PAGE>

not be required to make payments that would accelerate the repayment
of fixed interest rate balances. All outstanding balances shall be
repaid by December 31, 2004.

In the absence of instructions from the Borrower, or if the Borrower is in
default, the Bank, at its discretion, may apply repayments to the reduction
of any of the indebtedness outstanding between the Bank and the Borrower.

XII. LATE FEE PENALTY
Payments received fifteen (15) calendar days after the scheduled repayment
date are subject to a late payment penalty equal to 1% of the past due
amount but not less than $25.00 per transaction.

XIII.EXPIRATION
The unadvanced portion of the Loans shall be cancelled as indicated below;
provided, however, the Bank may, at its option, extend the expiration date
of the Loans and the maturity date of the Seasonal Loan without notice to
or consent of the Borrower.

Seasonal Loan, Note No. 29180 - January 31, 1999
Term Loan, Note No. 39181NP - August 1, 1998
Letter of Credit Commitment, Note No. 39182NP - December 31, 2008,
subject to decreased amounts provided for in the letter of credit.
Construction Term Loan, Note No. 35062 - December 31, 1998

XIV. REINSTATEMENT
In order to facilitate repayments and reborrowings under this loan
agreement, the Bank is authorized to reinstate all sums repaid on the
Seasonal Loan through the expiration date specified in this loan agreement;
provided, however, that the total amount outstanding under this loan
agreement shall not exceed the face amount of the Seasonal Loan; and
provided, further, that the right of the Borrower to such reinstatement may
be denied and cancelled at any time at the option of the Bank.

XV. DEFAULT PROVISION
If the Borrower shall fail to pay when due any amount on any of the Loans
under this loan agreement, or on any other indebtedness of the Borrower
secured hereby, or fail to observe or perform any of the provisions or
representations of this loan agreement, or of any security agreement or
mortgage, or shall be subject to the jurisdiction of a bankruptcy court
whether by a voluntary filing or involuntary action, or shall be in default
of the Note Purchase Agreement dated as of July 15, 1998, or any of the
documents evidencing such Note Purchase Agreement or securing the
obligation thereunder, the Borrower shall be in default. When the Borrower
is in default, the Bank may declare by written notice to the Borrower that
the Loans and other indebtedness are immediately due and payable. The Bank
may then terminate its commitment to lend and cancel any reinstatement
rights provided to the Borrower under this loan agreement, and proceed to
enforce payment and exercise any or all of the rights afforded to the Bank
by law or agreement. Upon demand, and as permitted by law, the Borrower
shall reimburse the Bank for all attorneys' fees and costs incurred by the
Bank in protecting or enforcing its rights or collateral, including
reasonable attorneys' fees incurred by the Bank in a bankruptcy or
receivership proceeding or in enforcing any judgment against the Borrower.

XVI. ACCEPTANCE
This loan agreement is the full agreement under the terms and conditions of
the Loans. It shall not be modified except in writing, and shall not
become effective unless the Borrower shall, within 60

<PAGE>

days from date, signify its acceptance of these terms and conditions by
signing and returning a copy of this loan agreement to the Bank.

BY DIRECTION of the loan committee this 23rd day of July, 1998.

ST. PAUL BANK FOR COOPERATIVES

By
-------------------------------------
Its Senior Vice President
------------------------------------

ACCEPTED AND AGREED TO:

DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA

By
-------------------------------------
Its
------------------------------------
Date
-----------------------------------

ACKNOWLEDGED BY AND AGREED TO AS TO SECTION VIII; AND SECTION X.,
PARAGRAPHS D. AND J.:

PRIMO PIATTO, INC.
NEW HOPE, MINNESOTA

By
-------------------------------------
Its
------------------------------------
Date
-----------------------------------

<PAGE>

NONNEGOTIABLE NOTE OF

DAKOTA GROWERS PASTA COMPANY

CARRINGTON, NORTH DAKOTA

NOTE NO. 39181

$16,000,000.00 July 23, 1998

For value received, the undersigned ("Maker") promises to pay to the St.
Paul Bank for Cooperatives ("Bank"), at its office in the City of St. Paul,
Minnesota, the sum of Sixteen Million and no/100 Dollars ($16,000,000.00) with
interest on the unpaid balance at a variable rate of interest which may increase
or decrease as the Bank may, from time to time, determine as provided in the
Loan Agreement of even date between the Maker and the Bank. The unpaid balance
of this note, with accrued interest, and required equity purchases, may be paid
at any time subject to a prepayment penalty, if any, in accordance with the
terms of the Loan Agreement between the Bank and Maker.

This note shall at all times evidence and constitute prima facie proof of
the indebtedness of the Maker to the Bank or its successors or assigns, of such
amount of money (not in excess of the amount of the principal indebtedness
stated above plus accrued interest and required equity purchases) as shown to be
owing by the records of the Bank, or its successors or assigns.

In the event that suit is brought on this note, the Maker agrees to pay
such reasonable attorneys' fees and costs of collection as permitted by law to
be charged.

The Maker hereby waives presentment for payment, demand, protest, notice of
protest, and notice of dishonor and nonpayment of this note.

If requested by the Bank, its successors or assigns, the Maker agrees to
deliver in substitution for this note, a negotiable note for the amount of the
unpaid balance of Maker's indebtedness, plus accrued interest and required
equity purchases.

DAKOTA GROWERS PASTA COMPANY

By
---------------------------
Its President

By
---------------------------
Its Secretary

<PAGE>

NONNEGOTIABLE NOTE OF

DAKOTA GROWERS PASTA COMPANY

CARRINGTON, NORTH DAKOTA

NOTE NO. 39181NP

$12,000,000.00 July 23, 1998

For value received, the undersigned ("Maker") promises to pay to the St.
Paul Bank for Cooperatives ("Bank"), at its office in the City of St. Paul,
Minnesota, the sum of Twelve Million and no/100 Dollars ($12,000,000.00) with
interest on the unpaid balance at a variable rate of interest which may increase
or decrease as the Bank may, from time to time, determine as provided in the
Loan Agreement of even date between the Maker and the Bank. The unpaid balance
of this note, with accrued interest, may be paid at any time subject to a
prepayment penalty, if any, in accordance with the terms of the Loan Agreement
between the Bank and Maker.

This note shall at all times evidence and constitute prima facie proof of
the indebtedness of the Maker to the Bank or its successors or assigns, of such
amount of money (not in excess of the amount of the principal indebtedness
stated above plus accrued interest) as shown to be owing by the records of the
Bank, or its successors or assigns.

In the event that suit is brought on this note, the Maker agrees to pay
such reasonable attorneys' fees and costs of collection as permitted by law to
be charged.

The Maker hereby waives presentment for payment, demand, protest, notice of
protest, and notice of dishonor and nonpayment of this note.

DAKOTA GROWERS PASTA COMPANY

By
---------------------------
Its President

By
---------------------------
Its Secretary

<PAGE>

NONNEGOTIABLE NOTE OF

DAKOTA GROWERS PASTA COMPANY

CARRINGTON, NORTH DAKOTA

NOTE NO. 39182NP

$12,000,000.00 July 23, 1998

This note shall at all times evidence and constitute prima facie proof of
the indebtedness of the Maker to the Bank or its successors or assigns, of such
amount of money (not in excess of the amount of the principal indebtedness
stated above plus accrued interest) as shown to be owing by the records of the
Bank, or its successors or assigns.

In the event that suit is brought on this note, the Maker agrees to pay
such reasonable attorneys' fees and costs of collection as permitted by law to
be charged.

The Maker hereby waives presentment for payment, demand, protest, notice of
protest, and notice of dishonor and nonpayment of this note.

DAKOTA GROWERS PASTA COMPANY

By
---------------------------
Its President

By
---------------------------
Its Secretary

<PAGE>

NONNEGOTIABLE NOTE OF

DAKOTA GROWERS PASTA COMPANY

CARRINGTON, NORTH DAKOTA

NOTE NO. 35062

$16,125,000.00 July 23, 1998

For value received, the undersigned ("Maker") promises to pay to the St.
Paul Bank for Cooperatives ("Bank"), at its office in the City of St. Paul,
Minnesota, the sum of Sixteen Million One Hundred Twenty Five Thousand and
no/100 Dollars ($16,125,000.00) with interest on the unpaid balance at a
variable rate of interest which may increase or decrease as the Bank may, from
time to time, determine as provided in the Loan Agreement of even date between
the Maker and the Bank. The unpaid balance of this note, with accrued interest,
and required equity purchases, may be paid at any time subject to a prepayment
penalty, if any, in accordance with the terms of the Loan Agreement between the
Bank and Maker.

In the event that suit is brought on this note, the Maker agrees to pay
such reasonable attorneys' fees and costs of collection as permitted by law to
be charged.

The Maker hereby waives presentment for payment, demand, protest, notice of
protest, and notice of dishonor and nonpayment of this note.

DAKOTA GROWERS PASTA COMPANY

By
---------------------------
Its President

By
---------------------------
Its Secretary

<PAGE>

[LETTERHEAD]

CONSENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated September 3, 1998, with respect to the financial
statements of Dakota Growers Pasta Company in Amendment No. 1 to the
Registration Statement on Form S-1 and the related prospectus of Dakota
Growers Pasta Company.

/s/ Eide Bailly LLP
- ------------------------
EIDE BAILLY LLP
October 21, 1998
Fargo, North Dakota