EXHIBIT 10.2
AMENDED AND RESTATED PROCESSING AGREEMENT
THIS AMENDED AND RESTATED PROCESSING AGREEMENT (this "Agreement") is
entered into effective July 1, 2006 by and between SMOKY MARKET FOODS, INC., a
Nevada corporation ("SMF") whose address for notices is ▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇.,
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ANN'S SPECIALTY FOODS, INC., an Iowa
corporation ("SPI") whose address for notices is also ▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇., ▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, and is made with reference to the following facts and
objectives:
WHEREAS, SPI is a food processing and distribution company which
operates a food processing facility located in ▇▇▇▇▇▇▇ City, Iowa (the "SPI
PROCESSING FACILITY"); and
WHEREAS, SMF is the licensee of certain technology, consisting of all
drawings, specifications, engineering, recipes, know-how, patent applications,
secret processes, procedures, documents and other information, relating to
techniques for the mass production of hickory-smoked meat and other food
products, which technology includes a proprietary wood-smoking technology and a
specialized wood-burning oven which is used in connection therewith (the
"SMOKER-OVEN System"); and
WHEREAS, SMF wishes to secure a long-term source for the processing and
packaging of certain of its products, as set forth on Exhibit A to this
Agreement (the "PRODUCTS"), to certain quality standards and in certain
quantities; and
WHEREAS, SPI has represented to SMF that the SPI Processing Facility,
when adapted as provided hereinafter, will be capable of producing the Products
to such standards and in such quantities, and that SPI is willing to process and
package the Products at the SPI Processing Facility for SMF for the
consideration and in accordance with the other terms and provisions set forth in
this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. INSTALLATION AND MAINTENANCE OF SMOKER-OVEN SYSTEM
(a) SMF (or its affiliates) and SPI have cooperated to cause, at SMF's
sole cost, (i) the remodeling of a specified portion of the SPI Processing
Facility (the "Modified Space") and the installation in the Modified Space of a
mid-size Smoker-Oven System (i.e., possessing the capacity to produce monthly,
assuming two 10-hour shifts daily, approximately 100,000 pounds of smoked foods)
and such other furnishings and equipment as in the judgment of SSL are necessary
for the proper operation of the Smoker-Oven System, including electrical and gas
monitoring meters, control devices, stainless steel grates and grate carriers,
and (ii) modifications and improvements to those other areas within the SPI
Processing Facility which in the judgment of SMF are necessary to enable those
areas to function as staging and packaging areas, a grate washing area, and
refrigeration and freezing areas (the "Related Areas"). SMF, subject to
prevailing regulations of local zoning laws, shall have the right to increase
the Modified Space at its sole cost for installation of additional Smoker-Oven
Systems.
(b) As been SMF and SPI, The Smoker-Oven System and related equipment
referred to in the preceding paragraphs will be and remain the property of SMF
and, subject to the provisions of Section 7(b) hereinbelow, will be removed
promptly from the Modified Space by SMF upon termination of this Agreement. At
all times during the term of this Agreement, SMF shall bear the risk of loss of
or damage to (except to the extent caused by the material negligence or willful
misconduct of SPI, its employees or agents), and shall be responsible for the
obtaining at SMF's cost of appropriate insurance for, such equipment, and shall
be responsible for the payment of all costs related to its ownership, repair and
maintenance, including but not limited to grease material, chemical supplies and
labor.
(c) SPI represents and warrants to SMF that the Modified Space and
Related Areas, upon completion of the modifications and improvements referred to
hereinabove, will be in compliance with, and SPI will have obtained all
licenses, permits and other authorizations required by, all applicable federal,
state and local laws and governmental regulations pertaining to the production
of the Products for SMF pursuant to this Agreement, including but not limited to
those regulations promulgated by state and local health authorities and the
United States Department of Agriculture (USDA).
2. OPERATION OF SMOKER-OVEN SYSTEM
(a) SMF will provide and pay the cost for a trained quality control
supervisor for each shift in which the Smoker-Oven System operates. SPI agrees
to provide a reasonable amount of space for a desk, chairs and file cabinet for
exclusive use by the quality control supervisor; SMF will pay telephone and
Internet charges. SMF will notify SPI immediately upon its discovery that
Products are not being processed in compliance with applicable specifications,
and if in SMF's judgment certain adjustments in production techniques are
desirable to achieve such compliance it will promptly advise SPI of such
determination; provided, however, that SMF's failure to give any notice pursuant
to this paragraph (a) shall not obligate SMF to accept any Products which do not
conform to the quality specifications therefor.
(b) SMF will prepare and provide to SPI, in advance, weekly "Production
Plans" which shall designate the quantity of raw meat to be supplied by SPI for
processing in the Smoker-Oven System, quantities of the various items of the
Products that are to be produced by SPI during the ensuing week, and a daily
production schedule. SMF shall have the right to revise the Production Plan from
time to time on sufficient advance notice to SPI.
(c) SPI shall process Products so that they are in compliance with the
specifications of SMF, which shall be subject to such reasonable changes therein
as SMF may make from time to time. SPI shall, unless SPI determines in good
faith that doing so would be contrary to established good practices affecting
processing of the Products, comply with all reasonable requests as to production
techniques and quality control that are made by SMF's quality control
supervisor. Products which are processed by giving effect to such requests of
SMF's quality control supervisor shall be deemed to conform to the quality
specifications established by SMF. At SMF's option, Products which are processed
after refusal to comply with such a request of SMF's quality control supervisor
shall be deemed not to conform to such quality specifications.
2
(d) SPI agrees to operate the Smoker-Oven System for two 10-hour shifts
daily, if necessary to fulfill its obligation hereunder to process and package
Products for SMF. SPI will not, however, operate the Smoker-Oven System if SMF's
quality control supervisor is not present or if authorized consent has not been
provided by SMF.
(e) SMF will supply and pay for freshly cut hickory and seasonings
meeting its special requirements for use in the processing of, and all labels to
be used in the packaging of, the Products.
(f) SPI shall maintain an inventory of, for use in fulfilling its
obligations hereunder, such quantities and kinds of raw meat and other foods as
are necessary to permit it to comply with weekly Production Plans presented by
SMF as provided above. Such inventory shall remain the property of SPI until
incorporated in processed Products, which are invoiced to SMF.
(g) SPI will supply all labor for the complete operation of the
Smoker-Oven System, including staging of raw food onto the grates, loading
grates into the Smoker-Oven System, operation of the firebox, removing grates
from the Smoker-Oven System, packaging processed Products, and washing grates.
Without limiting the generality of the foregoing, SPI will furnish sufficient
labor to meet SMF's production demands, as set forth in paragraph (b) above, and
to ensure that all Products processed by the Smoker-Oven System during any work
shift is also packaged within that shift, and all grates used during each work
shift are washed prior to commencement of the succeeding shift.
(h) SPI will make any and all records pertaining to its processing of
Products, including but not limited to raw food invoices, process yield sheets,
labor cards and shipping bills, available for inspection by SMF and its
representatives upon reasonable notice.
(i) SPI will provide facilities for the safe storage (including
refrigeration and freezing equipment) of all completed and packaged Products.
3. COMPENSATION TO SPI AND SMF
(a) For completed and packaged Products which are in compliance with
SMF's specifications, SMF will pay to SPI a processing fee, consisting of
reimbursement of SPI's verifiable raw product cost, labor costs, packaging
materials cost, and a per-pound and/or per-item general overhead allocation cost
and net profit amount, all as calculated in a manner such that SPI shall have
the capacity to realize a net profit of not less than $35,000 per month from the
operation of two 10-hour shifts of processing for SMF using the Smoker-Oven
System.
(b) SPI will generate an invoice for its processing fee at the time the
completed Products are shipped to SMF distribution centers, and payment shall be
due within 48 hours thereafter.
3
4. WARRANTY
SPI represents and warrants to SMF that the Products will be
of merchantable quality and conform to the quality specifications
established as provided herein, will not be adulterated or misbranded
within the meaning of the federal Food, Drug and Cosmetic Act, and will
comply with all applicable labeling and food processing standards of the
USDA.
5. INSURANCE; INDEMNITY
(a) Each of the parties shall maintain during the term of this Agreement
the insurance coverage which is deemed to be mutually acceptable and/or required
by SMF in order to fulfill certain requirements of SMF's distributors.
(b) Except as provided in paragraph (c), SPI will protect, defend, hold
harmless and indemnify SMF from and against any and all claims, actions,
liabilities, losses, costs and expenses (including reasonable attorneys' fees)
arising out of any death, injury, sickness, disease or loss of property claimed
to have resulted from a defect in the Products processed by SPI.
(c) The indemnity set forth in the preceding paragraph will not apply,
and SMF will protect, defend, hold harmless and indemnify SPI from and against
any and all claims, actions, liabilities, losses, costs and expenses (including
reasonable attorneys' fees) arising out of any death, injury, sickness, disease
or loss of property claimed to have resulted from a defect in the Products, to
the extent that such defect is a direct consequence of compliance with
specifications for such Products provided by SMF or with directions by SMF's
quality control supervisor.
(d) SPI will protect, defend, hold harmless and indemnify SMF from and
against any and all claims, actions, liabilities, losses, costs and expenses
(including reasonable attorneys' fees) which are related to injuries suffered by
SPI's employees and agents in the operation of the Smoker-Oven System.
6. TERM OF AGREEMENT
(a) The term of this A**greement shall begin on the date hereof and
extend for a period of (10) years. SMF shall have the option to extend the term
of this Agreement for an additional ten (10) year period, provided, however,
that SMF shall provide notice no later than ninety (90) days prior to the
expiration of the first ten-year term of this Agreement of its decision to
exercise its option to extend the terms of this Agreement.
(b) If for any reason SMF ceases its operations prior to the
termination of this Agreement, SMF will allow the Smoker-Oven System to remain
in the SPI Processing Facility for a period of time to be negotiated by the
parties herein, and will instruct SPI management as to its operation. Under such
circumstances, SMF will license SPI to operate the Smoker-Oven System for its
own use and private label distribution, and in consideration of such license SPI
will pay to SMF a royalty per pound processed equal to the greater of (i) $0.25
or (ii) 5% of SPI's selling price.
4
(c) If for any reason SPI ceases its operations prior to the
termination of this Agreement, SPI, if requested to do so by SMF, will take such
steps as are necessary to permit SMF, for a period equal to the unexpired term
of this Agreement, to continue to use the Modified Space and the Related Areas
for the purposes contemplated by this Agreement. Under such circumstance, SPI
will allow all of its existing equipment and leasehold improvements to remain in
the SPI Processing Facility. For the use of the Modified Space and the Related
Areas, SMF will pay to SPI a monthly rent of $25,000.
7. CONFIDENTIALITY
SPI acknowledges that, in the course of processing Products and
performing its duties under this Agreement, it will obtain information relating
to the Smoker-Oven System and the Products, which is of a confidential and
proprietary nature. Such information includes, but is not limited to, trade
secrets, know-how, inventions, techniques, processes, recipes, financial
information and sales and marketing plans ("Proprietary Information"). SMF owns
and intends to maintain its ownership of all such Proprietary Information. SPI
shall at all times both during the term of this Agreement and for a period of at
least two years after its termination, maintain in the strictest confidence and
trust all such Proprietary Information, and shall not use such Proprietary
Information other than in the course of its duties under this Agreement, nor
shall SPI disclose any of such Proprietary Information to any person or entity
without the written consent of SMF. SPI shall appropriately bind each of its
employees to whom any disclosure is made to hold the Proprietary Information in
strict confidence and not to disclose such information to any person or entity
other than as is necessary in the course of such employee's employment by SPI.
SMF shall be a third-party beneficiary of such employee agreements with the
right to enforce such agreements directly to the extent litigation is necessary
in order to protect SMF's rights in its Proprietary Information. Without
limiting the generality of the foregoing, SPI agrees that it will never operate,
or be a party or affiliate to the operation of, a wood-smoking oven system,
which is operated in the same manner as SMF's Smoker-Oven System. SPI may,
however, continue to operate any form or style of commercial "smokehouse"
equipment, as defined by the USDA, which processes by smoke convected by pipe
from a smoke generator.
8. MISCELLANEOUS PROVISIONS
(a) Unless otherwise provided in this Agreement, all notices required
under the terms of this Agreement shall be in writing and shall be sent to the
other party by facsimile, by electronic mail, or by registered mail, return
receipt requested, addressed to that party at the address set forth at the
beginning of this Agreement, or such other address as the party subsequently
designates by written notice given in accordance with this section. Any notice
given pursuant to this section by registered mail shall be deemed to have been
given and received on the tenth day following its dispatch in accordance with
the requirements of this section. Notices given by facsimile or electronic mail
shall be effective upon receipt. A notice under Section 9(a) may be given by
telephone and shall be deemed immediately effective if immediately confirmed by
facsimile.
(b) This Agreement may be amended only pursuant to a written document
signed by both parties and not by oral statements or course of conduct.
5
(c) This Agreement shall be governed and interpreted in accordance with
the laws of the State of Iowa applicable to contracts to be performed wholly
within such state by domiciliaries thereof.
(d) In the event that any provision hereof is found to be invalid,
illegal or unenforceable pursuant to judicial decree, the remainder of this
Agreement shall remain valid and enforceable and the excluded provision shall be
replaced by a mutually acceptable provision, which most closely represents the
original intent of the parties.
(e) Should any litigation be commenced between the parties concerning
any provision of this Agreement or the rights and duties of any person in
relation thereto, the party or parties prevailing in such litigation shall be
entitled, in addition to such other relief as may be granted, to a reasonable
sum as and for its attorneys' fees and costs in such litigation which shall be
determined by the court in such litigation or in a separate action brought for
that purpose.
(f) This Agreement may be executed in two counterparts, which together
shall constitute one and the same instrument, and each of which shall be deemed
to be an original.
(g) Neither party may assign its rights or obligations under this
Agreement without the written consent of the other, which however shall not be
withheld unreasonably. This restriction shall not apply to an assignment of
rights in goods or payments to a party's secured lenders.
(h) The obligations of a party, other than the obligation to pay money,
shall be suspended during the time and to the extent that the party is prevented
or delayed in complying with that obligation by Force Majeure. As used herein,
Force Majeure means a circumstance beyond the reasonable control of a party
which occurs without default of negligence of the party affected and includes
inevitable accident, storm, flood, fire, earthquake, explosion, labor strikes,
interruptions in utility service, perils of navigation, hostility, war (declared
or undeclared), insurrection, executive or administrative order or act of either
general of particular application of any government, whether de jure or de
facto, or of any official purporting to act under the authority of that
government, prohibition or restriction by domestic or foreign laws, regulations
or policies, quarantine or customs restrictions, break down or damage to or
confiscation of property.
(i) This Agreement supersedes and terminates the Processing Agreement
entered into between Smokey Systems, LLC, a Nevada limited liability company,
and SPI, dated January 10, 2001.
6
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first written above.
SMOKY MARKET FOODS, INC.
By /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Manager & CEO
▇▇▇▇ ANN'S SPECIALTY FOODS, INC.
By /S/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
Accepted and Agreed:
SMOKY SYSTEMS, LLC
By /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Manager
7
EXHIBIT A
PRODUCTS
--------------------------------------------------------------------------------
ENTREE ITEMS
------------
Pork Loin "Baby Back" Ribs
Pork "Country-Style" Ribs
Pork Loin Chop
Carved Boneless Chicken Breast
Jumbo Chicken Thigh
Cornish Game Hen
Turkey Breast, Thigh & Leg
Rack Of Lamb
Lamb Rib & Loin Chops
Duck
Salmon, Trout & Whitefish
SLICED OR CUT SMOKED FOODS
--------------------------
Beef Sirloin "Tri-Tip"
Beef Brisket
Corned Beef Brisket
Pork Loin Roast
Pork Shoulder
Boneless Pork Leg
Carved Chicken Strips
Turkey Breast
SMOKED FINGER FOODS
-------------------
Pork Country Rib Strips
Pork Ribletts
Carved Chicken Strips
Chicken Drummies (Regular & Teriyaki)
Lamb Ribletts Teriyaki
SIDE ORDER FOODS
----------------
Hickory Smoke-BakedTM Beans
Sweet Butter-Creamed Corn
Creamy-Garlic Coleslaw Dressing & Veggie Dip
Southern-Style Barbecue Dipping Sauce
8