REIMBURSEMENT AGREEMENT

Exhibit 10.13

REIMBURSEMENT AGREEMENT

BY AND BETWEEN

LIFECORE BIOMEDICAL, INC.

AND

M&I MARSHALL & ILSLEY BANK

IN CONNECTION WITH

$5,699,411.00 LETTER OF CREDIT

Dated As Of: August 1, 2004

TABLE OF CONTENTS

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REIMBURSEMENT AGREEMENT

THIS REIMBURSEMENT AGREEMENT, made as of the 1st day of August, 2004, by and between LIFECORE BIOMEDICAL, INC., a Minnesota corporation (the “Borrower”), and M&I MARSHALL & ILSLEY BANK, a Wisconsin state banking corporation with its banking house located in Milwaukee, Wisconsin (the “Lender”).

ARTICLE I.

DEFINITIONS

SECTION 1.1. Defined Terms. As used in this Agreement, the following terms shall have the meanings set out respectively after each (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

(a) Agreement: this Reimbursement Agreement.

(b) Bond Counsel: Dorsey & Whitney LLP, or such other bond counsel which is acceptable to the Lender.

(c) Bond Documents: individually or collectively, as the context requires, the Loan Agreement, the Indenture, the Bond Purchase Agreement, the Remarketing Agreement and the Tax Exemption Agreement.

(d) Bond Purchase Agreement: the Bond Purchase Agreement dated as of August 19, 2004, by and among the Borrower, the Issuer and the Underwriter.

(e) Bonds: the $5,630,000 Variable Rate Demand Purchase Revenue Bonds (Lifecore Biomedical, Inc. Project), Series 2004, issued by the Issuer.

(f) Borrower Documents: collectively, this Agreement, the Security Agreement, the Mortgage, the Pledge and Security Agreement, the Credit Agreement and any and all other documents and instruments executed by the Borrower and delivered to the Lender in connection with the financing transaction contemplated hereby.

(g) Cash Collateral Account: shall have the meaning assigned thereto in Section 4.11 hereof.

(h) Commitment: the commitment of the Lender hereunder to issue the Letter of Credit.

(i) Credit Agreement: the Revolving Credit Agreement dated as of December 18, 2002, by and between the Borrower and the Lender, as the same may be extended, renewed, restated or modified from time to time.

(j) Credit Enhancement Fee: shall have the meaning assigned thereto in Section 4.2 hereof.

(k) Event of Default: any of the events of default specified in Section 6.1 hereof.

(l) Indenture: the Indenture of Trust of even date herewith by and between the Issuer and the Trustee.

(m) Issuer: the City of Chaska, Minnesota.

(n) Land: the real property upon which the Project relating thereto is situated which is legally described on Exhibit A to the Mortgage.

(o) Letter of Credit: the Irrevocable Letter of Credit No. SB/IRB 314 issued by the Lender to the Trustee for the account of the Borrower in the original stated amount of $5,699,411.00 (calculated by adding the sum of (i) $5,630,000.00 representing the principal amount of the Bonds plus (ii) $69,411.00 representing a forty-five (45) day interest reserve on the Bonds calculated at 10%).

(p) Loan Agreement: the Loan Agreement of even date herewith by and between the Borrower and the Issuer.

(q) Mortgage: the Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement of even date herewith executed by the Borrower in favor of the Lender, pursuant to which the Borrower has granted to the Lender a first priority mortgage lien and security interest in and to, and a first assignment of leases and rents with respect to, the Project to secure repayment of the Borrower’s obligations to Lender under the Borrower Documents.

(r) Obligation of Reimbursement: shall have the meaning assigned thereto in Section 4.1 hereof.

(s) Organizational Documents: collectively, the following documents each of which shall be in form and substance acceptable to the Lender:

(1) a copy of the Articles of Incorporation of the Borrower, duly certified by the Secretary of State of the State of Minnesota;

(2) a copy of the Bylaws of the Borrower, duly certified by an officer of the Borrower;

(3) an original current Certificate of Good Standing for the Borrower, duly issued by the Secretary of State of the State of Minnesota;

(4) a copy of the resolutions of the Borrower authorizing the execution, delivery and performance of the Borrower Documents and the Bond Documents, duly certified by an officer of the Borrower; and

(5) an opinion of counsel for the Borrower dated as of the date hereof and acceptable in form and substance to the Lender.

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(t) Permitted Encumbrances: shall have the meaning assigned thereto in the Mortgage.

(u) Prime Rate: the prime or base rate of interest (or equivalent successor rate) set and announced from time to time by the Lender as a basis for determining the rate of interest on commercial borrowing, whether or not the Lender makes loans to other customers at, above or below said prime or base rate of interest.

(v) Project: the manufacturing facility located on the Land, as the same may from time to time exist.

(w) Remarketing Agreement: the Remarketing Agreement of even date herewith by and between the Borrower and the Underwriter.

(x) Security Agreement: the Security Agreement of even date herewith executed by the Borrower in favor of the Lender, pursuant to which the Borrower has granted to the Lender a first priority security interest in and to the property described therein to secure, among other things, repayment of the Borrower’s obligations to the Lender under the Borrower Documents.

(y) Tax Exemption Agreement: the Tax Exemption Agreement of even date herewith by and among the Issuer, the Borrower and the Trustee.

(z) Trustee: Wells Fargo Bank, National Association, and any co-trustee or successor trustee appointed, qualified and then acting under the provisions of the Indenture.

(aa) Underwriter: Northland Securities, Inc.

SECTION 1.2. Other Terms. All capitalized terms used herein and not otherwise defined in this Agreement shall have the respective meanings for purposes of this Agreement as are assigned to such terms in Article I of the Indenture or Section 1.01 of the Loan Agreement, as the case may be, including, without limitation, the following terms: Interest Payment Date; Business Day; Remarketing Agent; and Substitute Letter of Credit.

SECTION 1.3. Reimbursement Agreement Controlling. To the extent there exists any inconsistencies as between the terms and/or provisions contained in this Agreement and the Bond Documents, the language in this Agreement shall control.

ARTICLE II.

COMMITMENT TO ISSUE LETTER OF CREDIT

SECTION 2.1. Issuance of Letter of Credit. The Lender and the Borrower agree that, on the terms and subject to the conditions hereinafter set forth, the Lender shall issue the Letter of Credit to secure payment of the Bonds.

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SECTION 2.2. Expiration, Extension of Letter of Credit. The Letter of Credit shall have an initial expiration date of September 15, 2007. The Borrower acknowledges and agrees that the Lender shall have no obligation to extend the Letter of Credit at any time in the future. The Lender agrees, however, to provide the Borrower with at least one hundred twenty (120) days notice prior to the expiration date of the Letter of Credit or any extension thereof that the Lender will not be extending the expiration date of the Letter of Credit. The Borrower agrees to pay to the Lender on demand such fees as are customarily charged by the Lender in connection with extensions of letters of credit, as the same may change from time to time, which are currently in the amount of $750 per extension. The Borrower further acknowledges and understands that the Bonds will be subject to mandatory redemption if the Lender does not extend the Letter of Credit thereby resulting in a draw under the Letter of Credit unless a Substitute Letter of Credit is delivered to the Trustee pursuant to the Indenture or unless the Bonds are re-marketed pursuant to the terms of the Indenture.

SECTION 2.3. Draw Under Letter of Credit to Redeem Bonds. The Borrower acknowledges and agrees that the consent of the Lender is required in order for the Trustee to submit a drawing under the Letter of Credit for the purpose of optionally redeeming Bonds pursuant to the Indenture. The Lender shall give such consent provided (a) no Event of Default, and no event which with the giving of notice or the passage of time or both would constitute an Event of Default, has occurred and is then continuing, and (b) the Borrower provides evidence acceptable to the Lender that the Borrower will have deposited into the Cash Collateral Account by the time a drawing is submitted under the Letter of Credit an amount sufficient to reimburse the Lender for the amount of such draw. Amounts in the Cash Collateral Account may be utilized to reimburse the Lender for amounts drawn under the Letter of Credit, but not to fund draws under the Letter of Credit.

ARTICLE III.

CONDITIONS PRECEDENT

SECTION 3.1. Conditions Precedent to Issuance of Letter of Credit. The obligation of the Lender to issue the Letter of Credit shall be subject to the conditions precedent that it shall have received and approved the following:

(a) the Borrower Documents, duly executed and delivered by the Borrower;

(b) the Bond Documents, duly executed by the parties thereto;

(c) the Organizational Documents;

(d) evidence that the Mortgage has been duly recorded in the office of the County Recorder or the Registrar of Titles (as the case may be) for the county in which the Land is located;

(e) evidence that UCC-1 financing statements have been duly filed of record in the office of the Minnesota Secretary of State, serving to perfect valid first liens on the personal property subject to the Mortgage and the Security Agreement;

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(f) an opinion of Bond Counsel issued in connection with the Bonds which states that the Bonds are validly issued, and the interest on the Bonds is not includable in gross income for federal income tax purposes, either addressed to the Lender or accompanied by a reliance letter indicating that the Lender is entitled to rely on the opinion;

(g) certified copies of the resolution adopted by the Issuer authorizing the issuance of the Bonds;

(h) the Credit Enhancement Fee in the amount of $62,060.25 for the Letter of Credit that will accrue from August 19, 2004, through and including September 15, 2005, as required under Section 4.2 hereof;

(i) evidence of payment to the Trustee of the $2,400.00 set up fee and the first annual trustee fee in the amount of $2,400.00;

(j) the non-refundable, fully-earned origination fee in the amount of $28,150.00;

(k) evidence of payment of all expenses incurred by the Lender which are payable by the Borrower pursuant to Section 8.2 hereof; and

(l) such other documents and instruments as the Lender may reasonably request.

ARTICLE IV.

REIMBURSEMENTS AND OTHER PAYMENTS;
LENDER’S RIGHT TO CURE

SECTION 4.1. Obligation of Reimbursement. The Borrower hereby agrees to pay to the Lender (the “Obligation of Reimbursement”) (a) on the day that the Lender honors a draw under the Letter of Credit a sum equal to the amount drawn under the Letter of Credit plus any and all reasonable charges and expenses which the Lender may pay or incur relative to such draw, (b) on demand, any amounts advanced by the Lender in its sole discretion to cure any event of default under the Bond Documents, and (c) on demand, interest on all amounts remaining unpaid by the Borrower to the Lender under this Agreement at any time accruing from the date such amounts become payable (in the case of an amount payable on demand, which interest shall accrue from the date the Lender is first entitled to demand payment, regardless of whether a demand for payment is actually made), until payment in full, at an annual rate equal to two percent (2.00%) per annum in excess of the Prime Rate, as the same changes from time to time; provided, however, that no interest shall accrue or be payable on any amounts paid by the Lender pursuant to a draw submitted under the Letter of Credit if the full amount of such draw is reimbursed by the Borrower to the Lender, by 2:00 o’clock p.m. on the same day such draw is paid by the Lender. The Borrower agrees that it will have deposited with the Lender into the Cash Collateral Account at least one (1) Business Day before a draw is made under the Letter of Credit an amount equal to the anticipated amount of such draw.

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SECTION 4.2. Payment of Credit Enhancement Fee. So long as the Letter of Credit is outstanding, the Borrower agrees to pay the Lender a credit enhancement fee with respect to the Letter of Credit (the “Credit Enhancement Fee”) for each calendar year during the term of the Letter of Credit in an amount equal to one percent (1.00%) per annum of the maximum amount available to be drawn under the Letter of Credit as of the date of issuance of the Letter of Credit and as of September 15 of each calendar year thereafter. The Credit Enhancement Fee shall be payable in advance on the date hereof and on each September 15 thereafter while the Letter of Credit is outstanding commencing with September 15, 2005. Notwithstanding the foregoing, if and for so long as an Event of Default has occurred and continues or exists, then, at the Lender’s option, the Credit Enhancement Fee shall thereafter be increased by an additional one percent (1.00%) per annum.

SECTION 4.3. Capital Adequacy/Change in Law. If any change in any law or regulation or in the interpretation thereof by any court or administrative governmental authority charged with the administration thereof shall either (a) impose, modify or deem applicable or modify any capital adequacy, reserve, special deposit or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of the Lender (including without limitation, a requirement which affects the Lender’s allocation of capital resources), or (b) impose on the Lender any other condition regarding this Agreement or the Letter of Credit, and the result of any event referred to in the preceding clause (a) or (b) shall be to increase the cost (including without limitation, reserve or similar cost) to the Lender of issuing or maintaining the Letter of Credit or reduce the Lender’s return hereunder or all or any of the Lender’s capital is reduced (which increase in cost or reduction in return shall be determined by the Lender’s reasonable allocation of the aggregate of such cost increases or return reductions resulting from such events), then upon demand by the Lender, the Borrower shall immediately pay to the Lender, from time to time as specified by the Lender, additional amounts which shall be sufficient to compensate the Lender for such increased cost which will be incurred from and after the Lender first provides notice to the Borrower of such increase, together with interest on each such amount from the date demanded until payment in full thereof at the rate provided for in Section 4.1 hereof. A certificate as to such increased costs incurred by the Lender as a result of any event mentioned in clause (a) or (b) above, submitted by the Lender to the Borrower shall be conclusive, absent manifest error, as to the amount thereof.

SECTION 4.4. Computation of Credit Enhancement Fee and Interest. The Credit Enhancement Fee and interest payable on amounts due under this Agreement shall be computed on the basis of a 360-day year and charged for actual days elapsed.

SECTION 4.5. Right of Lender to Cure Defaults Under Bond Documents. If the Borrower shall fail to make any payments under the Bond Documents on the day such payment is first due and payable by the Borrower, or shall fail to comply with any other covenant or agreement of the Borrower under the Bond Documents, or if any other default or event of default shall occur under the Bond Documents, the Lender shall have the option, in the Lender’s sole discretion, to cure any such failure by taking action reasonably required to effect such cure, including, without limitation, making the required payment directly to the Trustee. Any such payment by the Lender shall constitute an advance repayable by the Borrower in accordance with Section 4.1 hereof. The Borrower shall be responsible for any costs and/or expenses incurred by the Lender in curing any such default or event of default.

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SECTION 4.6. Payments. All payments by the Borrower to the Lender hereunder shall be made in lawful currency of the United States in immediately available funds at the Lender’s office at 651 Nicollet Mall, Minneapolis, Minnesota 55402. In addition, the Lender shall have the right to debit any of the Borrower’s accounts at the Lender without further authorization of the Borrower to make any such payments.

SECTION 4.7. Collateral. The Borrower hereby acknowledges that the Obligation of Reimbursement and each and every other liability and indebtedness of the Borrower under the Borrower Documents is secured by the Mortgage, the Pledge and Security Agreement and the Security Agreement.

SECTION 4.8. Letter of Credit Fees. In addition to the Credit Enhancement Fee, the Borrower shall pay to the Lender, on demand, such fees as are customarily charged by the Lender from time to time in connection with the extension, amendment and administration of letters of credit, as the same change from time to time, including, without limitation, an administrative fee of $300 for each draw under the Letter of Credit which is in full compliance with the terms of the Letter of Credit and $600 for each draw under the Letter of Credit which is not in full compliance with the terms of the Letter of Credit. The Borrower shall also pay a customary transfer fee to the Lender if the Letter of Credit is transferred to a successor trustee under the Indenture.

SECTION 4.9. Required Deposits. Commencing on September 1, 2004, and continuing on the first (1st) day of each calendar month thereafter during the term of this Agreement, the Borrower shall deposit into the Cash Collateral Account an amount equal to one-twelfth (1/12th) of the next scheduled mandatory sinking fund payment under the Indenture. In addition, to the extent not paid from deposits made pursuant to the preceding sentence, Borrower shall deposit into the Cash Collateral Account at least five (5) Business Days prior to the date of each required redemption hereunder an amount sufficient to reimburse Lender for the amount of such redemption. Amounts in the Cash Collateral Account may be utilized to reimburse the Lender for amounts drawn under the Letter of Credit, but not to fund draws under the Letter of Credit.

SECTION 4.10. Substitution/Termination Fee. In the event the Letter of Credit is returned to the Lender prior to September 15, 2007, due to the issuance of a Substitute Letter of Credit or a refunding or other refinancing of the Bonds, the Borrower shall pay to the Lender at the time of such return a substitution/termination fee in an amount equal to two percent (2.00%) of the then outstanding principal balance of the Bonds.

SECTION 4.11. Cash Collateral Account. There is hereby established a Cash Collateral Account (the “Cash Collateral Account”) in the Borrower’s name with the Lender which shall be funded and administered in accordance with the terms set forth herein. The Lender will from time to time invest funds on deposit in the Cash Collateral Account in a money market account with the Lender.

(1) The Borrower hereby pledges and grants to the Lender a security interest in all funds held in the Cash Collateral Account from time to time and all proceeds thereof, as security for the payment of all amounts dues and to become due from the Borrower to the Lender under this Agreement.

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(2) The Lender may, at any time or from time to time after funds are deposited in the Cash Collateral Account, apply funds then held in the Cash Collateral Account to the payment of any amounts, in such order as the Lender may elect, as shall have become or shall become due and payable by the borrower to the Lender under this Agreement.

(3) Neither the Borrower nor any person or entity claiming on behalf of or through the Borrower shall have any right to withdraw any of the funds held in the Cash Collateral Account, except that after the expiration of the Letter of Credit in accordance with its terms and the payment of all amounts payable by the Borrower to the Lender under this Agreement, any funds remaining in the Cash Collateral Account shall promptly be returned by the Lender to the Borrower or paid to whomever may be legally entitled thereto.

(4) The Borrower agrees that it will not (A) sell or otherwise dispose of any interest in the Cash Collateral Account or any funds held therein, or (B) create or permit to exist any lien, security interest or other change or encumbrance upon or with respect to the Cash Collateral Account.

(5) The Lender shall exercise reasonable care in the custody and preservation of any funds held in the Cash Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Lender accords its own property it being understood that the Lender shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds.

ARTICLE V.

WARRANTIES, REPRESENTATIONS AND COVENANTS

SECTION 5.1. Warranties and Representations. The Borrower hereby warrants, represents and certifies to and for the benefit of the Lender as follows:

(a) the Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and to own its property and conduct its business as presently conducted and as proposed to be conducted;

(b) the Borrower possesses adequate licenses, certificates, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, to conduct its business substantially as now conducted and as presently proposed to be conducted;

(c) the execution, delivery and performance by the Borrower of the Borrower Documents and the Bond Documents will not violate any provision of the organizational documents of the Borrower or of any law, rule, regulation or court order or result in the breach of or constitute a default under any indenture or loan, credit or other agreement or instrument to which the Borrower is a party or by which it or its properties may be bound or affected or result in the creation or imposition of any lien, charge or encumbrance of any nature upon any of its properties or assets contrary to the terms of any such instrument or agreement;

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(d) each of the Borrower Documents and the Bond Documents constitutes the legal, valid and binding obligation of the Borrower enforceable in accordance with its respective terms (except, as to enforceability, to the extent limited by bankruptcy, insolvency and other similar laws affected creditors’ rights generally);

(e) the Project and the use thereof are permitted by and complies in all material respects with all presently applicable use or other restrictions and requirements in prior conveyances, zoning ordinances and all development, pollution control, water conservation and other laws, regulations, rules and ordinances of the United States and the State of Minnesota and the respective agencies thereof, and the political subdivision in which the Project is located;

(f) except as disclosed by the Borrower in its Form 10-Q report for its quarter ended March 31, 2004, as filed with the Securities and Exchange Commission, and excep