UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1998
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------------
COMMISSION FILE NUMBER 33-99834
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DAKOTA GROWERS PASTA COMPANY
(Exact name of registrant as specified in its charter)
NORTH DAKOTA
(State or other jurisdiction of
incorporation or organization)
ONE PASTA AVENUE
CARRINGTON, NORTH DAKOTA
(Address of principal executive offices)
45-0423511
(IRS Employer Identification Number)
58421
(Zip Code)
(701) 652-2855
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
The number of shares outstanding of the issuer's classes of common
stock was 1,103 shares of membership stock, par value $125.00, and 7,356,059
shares of equity stock, par value $2.50, outstanding as of December 15, 1998.
FINANCIAL STATEMENTS
DAKOTA GROWERS PASTA COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
October 31, July 31,
1998 1998
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 184 $ 182
Trade accounts receivable, less allowance for
cash discounts and doubtful accounts of
$29 and $174 ................................. 12,031 12,404
Other receivables .............................. 949 742
----------- -----------
Total receivables .............................. 12,980 13,146
Inventories .................................... 24,026 21,935
Prepaid expenses ............................... 4,197 3,915
----------- -----------
Total current assets ........................ 41,387 39,178
Property and equipment
In service ..................................... 95,257 89,030
Construction in process ........................ 3,788 5,463
Accumulated depreciation ....................... (15,022) (13,518)
----------- -----------
Net property and equipment .................. 84,023 80,975
Investment in St. Paul Bank for Cooperatives ...... 2,086 2,086
Other assets ...................................... 2,230 2,298
---------- -----------
Total assets ................................ $129,726 $124,537
=========== ===========
The accompanying notes are an integral part of these financial statements.
2<PAGE>
DAKOTA GROWERS PASTA COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
October 31, July 31,
1998 1998
----------- -----------
(unaudited)
LIABILITIES AND MEMBERS' INVESTMENT
Current liabilities:
Notes payable and current portion of long-term
debt ......................................... $10,209 $ 4,033
Accounts payable ............................... 5,802 5,748
Excess outstanding checks over cash on deposit . 1,711 2,336
Accrued grower payments ........................ 841 1,354
Accrued dividends .............................. 7,404
Accrued liabilities ............................ 3,989 2,894
----------- -----------
Total current liabilities ................... 29,956 16,365
Commitments and contingencies .....................
Long-term debt, net of current portion ............ 63,207 66,056
Deferred income taxes ............................. 4,900 4,900
Other long-term liabilities ....................... 88 88
----------- -----------
Total liabilities ........................... 98,151 87,409
----------- -----------
Preferred stock:
Redeemable preferred stock:
Series A, 6%, cumulative $100 par value,
issued 500 and 1,000 shares, respectively .. 50 100
Series B, 2% non-cumulative, $100 par value,
issued 525 and 1,525, respectively ......... 53 153
----------- -----------
Total preferred stock ....................... 103 253
----------- -----------
Members' investment:
Convertible preferred stock:
Series D, 6% non-cumulative, $100 par value,
issued 23,038 shares.......................... 2,304 2,304
Membership stock, $125 par value, issued 1,103
and 1,101 shares, respectively ............... 137 137
Equity stock, $2.50 par value, issued 7,356,059
shares ....................................... 18,390 18,390
Additional paid in capital ..................... 4,101 4,101
Accumulated allocated earnings ................. 4,895 2,914
Accumulated unallocated earnings ............... 1,645 9,029
----------- -----------
Total members' investment ................... 31,472 36,875
----------- -----------
Total liabilities and members' investment ... $129,726 $124,537
=========== ===========
The accompanying notes are an integral part of these financial statements.
3<PAGE>
DAKOTA GROWERS PASTA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Three Months Ended
October 31,
1998 1997
----------- -----------
(unaudited)
Net revenues (net of discounts and allowances of
$4,450 and $1,721, respectively ................ $31,508 $22,852
Cost of product sold .............................. 25,878 17,486
----------- -----------
Gross proceeds .............................. 5,630 5,366
Marketing, general and administrative expenses .... 2,367 809
----------- -----------
Operating proceeds .......................... 3,263 4,557
Other income (expense):
Interest and other income ...................... 2 36
Interest expense, net .......................... ( 1,264) ( 556)
----------- -----------
Income before income taxes ........................ 2,001 4,037
Income taxes expense ..............................
----------- -----------
Net income from patronage and non-patronage
business ....................................... 2,001 4,037
Dividends on preferred stock ...................... 65 5
----------- -----------
Earnings from patronage and non-patronage business
available for members ........................... $ 1,936 $ 4,032
=========== ===========
Average equity shares outstanding ................. 7,356 7,356
Fully diluted average equity shares outstanding ... 7,805 7,411
Earnings from patronage and non-patronage
business per average equity share outstanding:
Basic .......................................... $ .26 $ .55
=========== ===========
Fully Diluted .................................. $ .26 $ .55
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
DAKOTA GROWERS PASTA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
October 31,
1998 1997
----------- -----------
(unaudited)
Cash flows from operating activities:
Net Income ..................................... $ 2,001 $ 4,037
Add (deduct) non-cash items:
Depreciation and amortization ................ 1,674 877
Non-cash portion of patronage dividend ....... ( 67) ( 36)
Interest capitalized ......................... ( 57) ( 77)
Loss on retirement of assets ................. 7
Changes in assets and liabilities:
Trade receivables ............................ ( 373) ( 406)
Accounts receivable from growers ............. ( 1,089)
Other receivables ............................ ( 207) ( 80)
Inventories .................................. ( 2,091) ( 912)
Prepaid expenses and other assets ............ ( 324) ( 1,560)
Accounts payable ............................. 54 1,657
Excess outstanding checks over cash on deposit ( 625) ( 2,457)
Grower payables .............................. ( 513) 253
Other accrued liabilities .................... 1,137 ( 94)
----------- -----------
Net cash from (used in) operating activities 1,362 925
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment ............ ( 4,522) ( 2,113)
Lease improvements, packaging development and
purchase of other assets ..................... ( 15) ( 191)
----------- -----------
Net cash used in investing activities......... ( 4,537) ( 2,304)
Cash flows from financing activities:
Net issuance of short-term debt ................ 3,350 ( 2,200)
Issuance of long-term debt ..................... 5,800
Payments on long-term debt ..................... ( 23) ( 14)
Preferred stock retired ........................ ( 150) ( 50)
Dividends on preferred stock ................... ( 5)
----------- -----------
Net cash from financing activities .......... 3,177 3,531
----------- -----------
Net increase (decrease) in cash and cash
equivalents ..................................... 2 2,152
Cash and cash equivalents, beginning of period .... 182 5
----------- -----------
Cash and cash equivalents, end of period .......... $ 184 $ 2,157
=========== ===========
Non-cash investing and financing activities:
Declaration of patronage distribution .......... $ 7,339 $ 4,745
Declaration of preferred dividends ............. 65 5
----------- -----------
$ 7,404 $ 4,750
=========== ===========
The accompanying notes are an integral part of these financial statements.
5<PAGE>
DAKOTA GROWERS PASTA COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
The following notes should be read in conjunction with the notes to
financial statements for the year ended July 31, 1998, as filed in the
Company's Form 10-K.
NOTE 1. ORGANIZATION - Dakota Growers Pasta Company ("the Company" or "the
Cooperative") is organized as a farmers' cooperative for purposes of
manufacturing food for human consumption from durum and other grain products.
Net proceeds are allocated to patrons who are members on the basis of their
participation in the cooperative.
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.
NOTE 2. FINANCIAL STATEMENT PRESENTATION - The financial information
included herein as at October 31, 1998, and for the three month period ended
October 31, 1998 and 1997, is unaudited and, in the opinion of the Company,
reflects all adjustments (which include only normal recurring accruals)
necessary for a fair presentation of the financial position as of those dates
and the results of operations for those periods. The information in the
Balance Sheet at July 31, 1998, was derived from the Company's audited annual
report for 1998. Reclassifications may have been made consistent with current
presentation. Such reclassifications have no effect of the net result of
operations.
The financial information included herein as of October 31 and July 31, 1998
and for the three month period ended October 31, 1998 includes the
consolidated balances and results of operations of Dakota Growers and its
wholly-owned subsidiary, which was acquired on February 23, 1998 and disclosed
in NOTE 3. The Company has eliminated intercompany balances, and intercompany
sales and purchases, from the consolidated balances and results.
NOTE 3. 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, the assumption of debt and the issuance of
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 this acquisition
by the purchase method. The details of the acquisition are more fully
described in the Company's Form 10-K for the year ended July 31, 1998.
NOTE 4. INVENTORIES - Inventories of $24,026,000 at October 31, 1998,
include raw materials of $4,667,000 and finished goods and by-products of
$19,359,000. At July 31, 1998, inventories of $21,935,000 included raw
materials of $4,120,000 and finished goods and by-products of $17,815,000.
NOTE 5. PATRONAGE BUSINESS - The Company's business is conducted on a
cooperative basis. 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 spring wheat flour purchased from non-
members and blended with other flours, the resale of pasta purchased from non-
members, the resale of semolina purchased from non-members, interest income on
invested funds and any income taxes assessed on non-member business. For the
three months ended October 31, 1998 and 1997, net income allocable to
patronage business was $1,971,000 and $3,983,000, respectively.
6
NOTE 6. EARNINGS AND DIVIDENDS - The Company allocates its patronage
earnings and patronage distributions based on patronage business (bushels of
durum delivered, which approximates one bushel of durum per equity share).
For presentation purposes, it has calculated basic 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 outstanding convertible preferred stock and stock options for
convertible preferred stock. Fully diluted earnings per share have been
calculated for the assumed conversion of these dilutive securities. Because
the Company's stock is only traded in a small secondary market through private
transactions, the Company has assumed the proceeds from the exercise of stock
options would reduce debt and, thus, interest expense.
A qualified patronage allocation of $7,338,000, $1.00 per bushel delivered by
members, was authorized by the Board of Directors in October 1998 and
distributed in November 1998. Additionally, $1,981,000, $.27 per bushel, was
allocated to the members but neither distributed nor qualified for income tax
purposes. A qualified patronage allocation of $4,745,000, $1.00 per bushel,
was authorized by the Board of Directors in October 1997 and distributed in
November 1997. Additionally, $2,501,000, $.527 per bushel, was allocated to
the members but neither distributed nor qualified for income tax purposes.
NOTE 7. 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 transacted with member patrons which are allocated, qualified
and paid as prescribed in Section 1382 of the code will be taxable to the
members and not to the Company. 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 allocated and paid as stated above or
arise from business done with non-members, the Company shall have taxable
income subject to corporate income tax rates. Cooperative organizations have
8 1/2 months after their fiscal year-end to make such allocations in the form
of written notices of allocation or cash.
The Company has not established any provision for income taxes for the nine
months ended October 31, 1998.
7<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion contains forward-looking statements. Such
statements are subject to risks and uncertainties, including those
discussed in the Company's 1998 Form 10-K 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 the Three Months ended October 31, 1998 and 1997
For the quarter ended October 31, 1998, the Company's earnings
totaled $1.9 million. While down as anticipated from the $4.0 million
earned last year, these results exceeded forecasted expectations by over
8%.
Pasta sales volumes continue to increase, up 47% over last year, and
net revenues from pasta sales increased by 54% for the period. The net
earnings impact of these increased pasta sales was $1.9 million. Most
of the sales increase was in private label retail, where we estimate we
now have an industry-leading market share of 37%.
The increase in private label retail sales resulted in additional
costs associated with higher inventories. In comparing quarters, we
incurred $0.6 million of increased transfer freight and storage and
handling costs moving this inventory to forward distribution centers.
It has also led to the enhancement of our sales and sales service team,
resulting in $0.4 million of additional costs.
In February 1998, we acquired additional retail manufacturing
facilities in the Minneapolis, Minnesota area. This acquisition was in
response to increasing customer demand, and has allowed us to meet
customer product requirements internally, and thus control our own
quality and service levels. It also provides us with capacity for the
continuing growth of our existing customers and for future marketing
efforts. While providing these benefits, there is a period impact of
the lower utilization of these facilities. Staffing for administrative,
quality assurance, sanitation, engineering and maintenance are adequate
for a much higher utilization. We estimate the cost of under-utilizing
this experienced staff at $1.4 million for the quarter. The
depreciation and interest associated with the new facilities totaled an
additional $0.8 million. These costs were partially offset by an
estimated $0.6 million savings from reducing our outside purchases of
pasta.
Our existing milling operations are not sufficient to meet the
current semolina requirements for pasta manufacturing, causing us to
have a portion of our members' durum to be toll milled by a third party.
We estimate that the earnings impact of this toll milling was $0.3
million for the quarter. A reduction in the livestock feeding industry
and increased competition from other sources of feed lowered the price
we were able to realize from the sale of by-products of our durum
milling operations. This price decline had an estimated $1.2 million
impact on net revenues for the quarter.
8
As we entered the new fiscal year, we had durum and flour purchase
commitments that were high relative to the market price of pasta, the
result of an extremely favorable conclusion to the durum-growing season
and changes in the pasta industry resulting in excess capacity and
competitiveness in the pasta market. As previously disclosed, these
conditions were exactly opposite from those experienced in the first
half of last fiscal year. We estimate that this impact on the first
quarter of fiscal 1999 compared to last year was $1.8 million, almost
entirely offsetting the $2.1 million benefit derived from the balance of
our durum purchases.
Overall cost of sales were up $8.4 million, due to increased sales
and the increase resulting from the fixed costs of quality assurance,
sanitation, engineering, maintenance and depreciation associated with
the lower utilization of pasta assets.
Marketing, general and administrative expenses (MG&A), at 7.5% of net
revenues were more than double the 3.5% of net revenues last year. Most
of the impact was due to the factory administration impact of the lower
utilization of pasta assets and enhancement of sales and sales support
costs. A change in the member durum delivery mechanism resulted in a
reduction of $200,000 in cash available to the Company, most of which is
kept by the members. The enhancement of our information technology
department to focus on the Year 2000 issue, electronic data interchange
and the installation of a technology support structure to drive the new
ERP software system added approximately $70,000 in MG&A expense.
Interest expense increased $0.7 million, primarily due to the debt
issued for the acquisition of the Minnesota facilities. Debt
restructuring in July and August reduced our average interest rates,
resulting in savings of $73,000 for the quarter.
We continue to anticipate that the conditions discussed above will
exist, although to a lesser degree, through the second quarter of fiscal
1999, resulting in earnings that will be slightly less than earnings in
the second quarter of fiscal 1998. The higher durum commitments will be
completed during the second quarter, and with the completion of our mill
expansion in March 1999 and continued growth in sales, we are guardedly
optimistic of the results for the latter half of fiscal year 1999.
Liquidity and Capital Resources
The opening line in Dakota Growers' Mission Statement reads "Dakota
Growers Pasta Company was founded on the dream to provide farmers with
the means to secure a future for themselves and their families." In
keeping true to this statement, we attempt to return as much of our
earnings back to our members annually as possible, balanced with
financial responsibility for ongoing obligations and future growth
opportunities. Our liquidity requirements include the construction or
acquisition of manufacturing facilities and equipment and the expansion
of working capital to meet our growth requirements, as well as a fair
return to our members. We meet these liquidity requirements from cash
provided by operations, sales of equities and outside debt financing.
Operations generated $1.4 million in cash for the quarter ended
October 31, 1998, up from the $0.9 million generated last year. For the
twelve months ended October 31, 1998, our fixed charge coverage, the
measurement of the number of times each year we earn enough to cover
fixed charges, was at 3.7x, well above the 2.0x requirement of our loan
agreements.
9
Cash used in investing activities totaled $4.5 million, primarily for
mill expansion. In fiscal year 1998, we entered into agreements for an
estimated $10.5 million mill expansion project and an estimated $1.3
million ERP software replacement project. As of October 31, 1998, $4.6
million had been expended on these projects.
In October 1998, the Board of Directors, consistent with past
practice, declared a qualified patronage allocation and distribution of
$1.00 per bushel delivered by members in fiscal year 1998. This
distribution was made on November 16, 1998.
On November 19, 1998, our stock offering was declared effective by
the Securities and Exchange Commission. The first two phases of this
offering, which are restricted to existing members, will run through
January 6, 1999. Through this offering, we are targeting to raise
between $12.4 million and $24.9 million for the mill expansion, to
replace the working capital expended in fiscal year 1998 for pasta
expansion construction projects and to re-enhance our financial position
which was reduced by the issuance and assumption of debt associated with
the acquisition of the Minnesota facilities. Through the purchase of
equity stock, our members are also committing to providing up to 1
bushel of milling quality durum to the Company per equity share owned.
If the entire offering is sold, we will have enough durum commitments to
run all mills, including the third mill currently under construction, at
capacity. We believe that cash generated by operations, borrowings and
net proceeds from the sale of at least 50% of the shares in this
offering will be adequate to meet the minimum capital and liquidity
requirements for the foreseeable future.
In the event that we do not receive at least 50% of the maximum
proceeds from this offering, we will be required to consider other
alternatives which would provide access to the capital necessary for our
continued activities and growth. These strategies could include
deferral or reduction of capital expenditures, retaining a higher level
of annual earnings than has been historical practice, the issuance of
additional debt financing, searching for equity investments from
institutional investors, the use of alternative business structures and
entering into joint ventures with either strategic or financial goals.
We have utilized outside financing on a short-term basis to fund
operations and expansion projects until permanent financing is issued.
Short-term financing is provided by the St. Paul Bank for Cooperatives
(Bank). In late November 1998, the short-term line of credit with the
Bank was increased to $15.0 million. Borrowings against the line are
secured by cash, receivables and inventories. For the quarter ended
October 31, 1998, short-term debt increased by $3.4 million
Our long-term financing requirements are currently provided by the
Bank and through Senior Secured Notes held by institutional investors.
The Senior Secured Notes were issued on August 11, 1998. The various
debt agreements obligate us to maintain or achieve certain amounts of
equity and certain financial ratios.
With the October 1998 declaration of patronage distributions, our net
ownership ratio fell below the 40% requirement of the Bank's loan
agreement. While retention of 1998 earnings would have allowed us to
remain in compliance with the net ownership requirement, the Board of
Directors believed that such retention would deny the members the
opportunity to assess their individual financial situation in making
10
investment decisions in the stock offering. We asked for and received a
waiver from the Bank for the net ownership noncompliance. If we are unable
to raise a minimum of $10.0 million in the stock offering by January 6,
1999, we will be required to implement a unit retain program, withholding a
portion of our durum payments to our members until compliance is achieved.
As of October 31, 1998, we meet our debt agreement requirements for
working capital, net worth and cash flow to fixed charges ratio. Our
funded debt to cash flow is at 4.2:1, outside our requirement to
maintain a 4.0:1 ratio through July 31, 1999. With the use of proceeds
from the stock offering and projected results for the second quarter, we
anticipate this ratio to be below the 4.0:1 requirement by January 1999.
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 effect on our operations and financial performance
because computer and other systems are integral parts of our, and our
suppliers' and customers', manufacturing and distribution activities, as
well as our accounting, sales and other information systems. In the
event of failure or miscalculation, we will have to divert financial
resources and personnel to address this issue.
We are in the process of reviewing our computer and other hardware
and software systems, and have begun upgrading systems that are
identified as not being year 2000 compliant. The ERP system (software
and hardware), along with the critical pasta production equipment has
been tested, and either replaced or modified to be year 2000 compliant
at this time. We anticipate all existing critical information and
processing systems will be year 2000 compliant by the end of fiscal year
1999. We have alternate plans in the event any critical system
upgrading that is necessary is not completed on time. We believe these
alternate plans are sufficient to meet our internal needs.
Although we are not aware of any material operational impediments
associated with making any necessary upgrades to our computer and other
hardware and software systems to be year 2000 compliant, we cannot make
any assurance that the upgrade of our computer systems will be free of
defects or that our alternate plans will be sufficient to meet our
needs. If such risks materialize, we could experience material adverse
consequences to our operations and financial performance, substantial
costs, or both.
We have begun contacting our significant suppliers and customers as
part of our year 2000 compliance action plan, to identify any potential
year 2000 compliance issues with them. We are currently unable to
anticipate the magnitude of the operational or financial impact of year
2000 compliance issues with our suppliers and customers.
We expect to incur up to $500,000 during fiscal year 1999 to resolve our
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.
11
Part II
Item 6. Exhibits and Reports on Form 10-Q
(a) Exhibits
EXHIBIT
NO. DESCRIPTION
------- -----------
10.1 Loan Agreement in the aggregate amount of $55,950,000.00
dated November 24, 1998, between the Company and St. Paul
Bank for Cooperatives.
10.2 Nonnegotiable Note of Dakota Growers Pasta Company in the
principal amount of $15,000,000.00 dated November 24, 1998.
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
(b) Reports on Form 8-K
None
12<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dakota Growers Pasta Company
Date: December 14, 1998 /s/ Timothy J. Dodd
---------------- ----------------------------------
Timothy J. Dodd (President and
General Manager, and Principal
Executive Officer)
Date: December 14, 1998 /s/ Thomas P. Friezen
---------------- ----------------------------------
Thomas P. Friezen (Vice President,
Finance and Principal Financial
and Accounting Officer)
13<PAGE>
Exhibit 10.1
380313 Date Approved 11/24/98
ST. PAUL BANK FOR COOPERATIVES
Loan Agreement
Borrower: Application No. S-27434
DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA
New Loans Present Loans
$15,000,000.00 - Seasonal Loan $12,000,000.00 - Term Loan
[12,000,000.00] - Letter of Credit
Commitment 13,000,000.00 - Term Loan
15,950,000.00 - Construction Term Loan
-------------
$40,950,000.00
Total Loans
------------
$15,000,000.00 - Seasonal Loan, Note No. 24340
12,000,000.00 - Term Loan, Note No. 39181NP*
[18,000,000.00] - Letter of Credit Commitment, Note No. 39182NP*/**
13,000,000.00 - Term Loan, Note No. 3061
15,980,000.00 - Construction Term Loan, Note No. 35062
-------------
$55,950,000.00 - Total
*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 $55,950,000.00.
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 Loan, Note No. 39181NP, was used to finance 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, was used to finance the mill
and pasta line expansion (the "Project").
14
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.
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.
IV. INTEREST
A. All Seasonal Loan balances hereunder shall bear a 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
15
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 60 basis points (0.60%) 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):
Incentive Interest Rate Matrix
-------------------------------------------------------------------
NET OWNERSHIP INCREASE/DECREASE CHANGE TO INTEREST
RATIO TO INTEREST RATE RATE IN BASIS POINTS
-------------------------------------------------------------------
Less than ***% ***** *****
-------------------------------------------------------------------
Less than ***% and ***** *****
greater than or
equal to ***%
-------------------------------------------------------------------
Less than ***% and ***** *****
greater than or
equal to ***%
-------------------------------------------------------------------
Less than ***% and ***** *****
greater than or
equal to ***%
-------------------------------------------------------------------
Greater than or equal ***** *****
to ***%
-------------------------------------------------------------------
The interest rate change shall occur within one month after the
Bank's receipt of the monthly compliance report.
E. 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.
F. 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.
[* - Confidential treatment requested in previous filing]
16
G. Interest on the Loans shall be payable on the last day of each
calendar quarter or as the Bank may specify.
V. FEES
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 calander 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 calander quarter, in arrears. This commitment fee shall be
on a non-patronage basis.
C. Borrower shall pay an origination fee of $4,000 payable at the time
of the first advance.
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:
D. The minimum fixed amount shall be $100,000.
E. Each fixed amount and each selected pricing maturity date will be
treated as a separate indebtedness for interest rate designation and
interest billing purposes.
F. 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 April 30, 2000.
G. 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.
H. Fixed amounts shall be automatically converted to the variable rate
seasonal loan at maturity.
I. 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.
J. 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. 24340.
2. The fixed amount and its Contract No.
3. The rate of interest.
4. The effective date.
5. The pricing maturity date.
17
K. 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 the Bank of the error within five days after receipt of the
statement and an appropriate correction will be made.
L. 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.
M. 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.
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 Nos. 33061 / 35062.
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 the Bank of the error within five days after receipt of the
statement and an appropriate correction will be made.
18
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
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,
19
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:
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 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
the "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 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
20
receive allocations of patronage earnings on Term Loan, Note No.
39181NP and Letter of Credit Commitment, Note No. 39182NP.
D. Insurance: The Borrower will maintain:
1. Business and property insurance with financially sound insurers,
in amounts sufficient to protect the Loans.
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.
E. Financial Information: The Borrower will furnish the Bank audited
annual financial statements prepared in accordance with 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 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 will not be
unreasonably withheld.
I. Environmental Representations, Conditions, and Indemnity Clause:
Except as disclosed in writing to the Bank, the Borrower 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
21
ground or underground storage tanks.
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. 24340, of not to exceed $15,000,000
shall mature on October 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 October 31, 1999 shall be repaid no later than April
30, 2000.
B. The present 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.
C. Advances made in support of Letter of Credit Commitment, Note No.
39182NP, of not to exceed $12,000,000, shall be payable on demand.
D. The present Term Loan, Note No. 33061, of $13,000,000 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, commencing on March 31, 2000; 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.
E. The present Construction Term Loan, Note No. 35062, of $15,950,000
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 not be required to make payments that would
22
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. 24340 - October 31, 1999
Letter of Credit Commitment, Note No. 39182NP - December 31, 2008,
subject to decreased amounts provided for in the letter of credit.
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 executed by Borrower
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.
23
XIV. 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 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 24th day of November, 1998.
ST. PAUL BANK FOR COOPERATIVES
By /s/ Marvin L. Lindo
Its Senior Vice President
ACCEPTED AND AGREED TO:
DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA
By /s/ Tim Dodd
Its President
ACKNOWLEDGED BY AND AGREED TO
AS TO SECTION VIII; AND SECTION X.,
PARAGRAPHS D. AND I.:
PRIMO PIATTO, INC.
NEW HOPE, MINNESOTA
By /s/ Tim Dodd
Its President
24 <PAGE>
Exhibit 10.2
380313 Date Approved: 11/24/98
NONNEGOTIABLE NOTE OF
DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA
Note No. 24340
$15,000,000.00 November 24, 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 Fifteen Million no/100 Dollars ($15,000,000.00) 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 /s/ Timothy J. Dodd
Its President
By /s/ Curtis R. Trulson
Its Secretary
25<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and statements of income filed as part of the quarterly report on form
10-q and is qualified in its entirety by reference to such quarterly report on
form 10-q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 184
<SECURITIES> 0
<RECEIVABLES> 13,009
<ALLOWANCES> 29
<INVENTORY> 24,026
<CURRENT-ASSETS> 41,387
<PP&E> 99,045
<DEPRECIATION> 15,022
<TOTAL-ASSETS> 129,726
<CURRENT-LIABILITIES> 29,956
<BONDS> 63,207
50
2,357
<COMMON> 137
<OTHER-SE> 29,031
<TOTAL-LIABILITY-AND-EQUITY> 129,726
<SALES> 31,508
<TOTAL-REVENUES> 31,508
<CGS> 25,878
<TOTAL-COSTS> 28,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,264
<INCOME-PRETAX> 2,001
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,001
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
