Exhibit 10.28
PRODUCTION AGREEMENT
This Production Agreement ("this AGREEMENT") is executed February 14, 2006, and
is between PORTLAND BREWING COMPANY, an Oregon corporation ("PBC"), and PYRAMID
BREWERIES, INC., a Washington corporation ("PMID").
RECITALS
A. PMID is the owner, or licensee with right to sublicense, of the trademarks
(the "Trademarks") and related trade names (the "Trade Names") set forth in
Exhibit A hereto.
B. PBC and PMID wish to enter into this Agreement and the other agreements
referenced herein to memorialize the terms of the contract brewing
relationship between the parties. This Agreement shall be effective as of
August 1, 2004.
C. PBC subleases from PMID under a lease effective August 1, 2004 (the
"SUBLEASE") and operates a bonded brewing facility for which PBC holds all
state and federal permits, licenses, and other entitlement necessary to
carry out the purposes of this Agreement.
D. PBC leases certain equipment necessary to carry out the purposes of this
Agreement from PMID under an equipment lease effective August 1, 2004 (the
"EQUIPMENT LEASE").
E. PMID has agreed to provide to PBC the services of certain PMID employees to
carry out labor required for production of beer under this Agreement,
pursuant to a contract labor agreement effective August 1, 2004 (the
"STAFFING AGREEMENT"), but PBC retains the right to hire or otherwise
obtain its staff from any source of its choosing.
F. PBC and PMID are parties to a Sublease (Alehouse) effective August 1, 2004
(the "ALEHOUSE SUBLEASE").
G. PBC and PMID are parties to a Restaurant Management Agreement effective
August 1, 2004 (the "MANAGEMENT AGREEMENT").
H. PMID has agreed to indemnify PBC from all liability arising from this
Agreement and the other agreements referenced herein pursuant to the terms
of an Indemnification Agreement dated February 14, 2006 (the
"INDEMNIFICATION AGREEMENT").
I. The parties desire that PBC produce to the specifications of PMID certain
beers (the "PRODUCTS") and, under the Trade Names, to package and sell the
Products under the Trademarks in accordance with the terms hereof.
TERMS & CONDITIONS
1. Interests. This Agreement is intended only to form a commercial
relationship, and nothing herein shall give PMID actual or legal control of
any production premises of PBC or grant PMID any interest in PBC or in any
license or permit held by PBC. PBC is entirely responsible for producing
the Products, keeping all records required by law, labeling the Products
with its address and its duly registered trade names, obtaining necessary
label approvals and other authorizations as may be required to carry out
the purposes of this Agreement, and for payment of excise taxes on the
Products at the appropriate rates when due. PMID may acquire raw materials,
packaging material, or other processing aids for the account of PBC, and
title to all such materials will vest in PBC upon delivery to the brewery
facility. At all times from
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production until removal from PBC's premises or payment of excise taxes,
PBC shall hold title to the Products.
2. Termination.
2.1 Termination: A party may terminate this Agreement for any reason upon
180 days written notice to the other party.
2.2 Termination Upon Change in Law: In the event that there is a change in
applicable law or regulation or in the interpretation or application
thereof by a court or other governmental agency that would
substantially impair the economic benefit to a party of the
relationship created by this Agreement, either party may terminate
this Agreement with the consent of the other party upon 30 days
written notice. A party's consent to a termination under this Section
2.2 shall not be unreasonably withheld or delayed.
2.3 Effect of Termination: Upon termination of this Agreement, PMID will no
longer be required to fulfill its requirements for the Products in
accordance with the terms of this Agreement, and PBC will no longer be
required to produce PMID's requirements for the Products. All of the
provisions of this Agreement providing for payment, credits or other
consideration from one party to another, including Sections 10 and 11
will survive the termination this Agreement.
3. Recipes; raw materials. In producing the Products, PBC shall employ such
recipes, consistent with law and good manufacturing practices and feasible
under industry standards for first-quality handcrafted microbrew, as PMID
or other proprietor of any of the Trademarks may specify in the exercise of
its duty as trademark proprietor to establish the quality of products
bearing the Trademarks. PBC shall use ingredients and processing aids
specified or provided by PMID. Upon PMID's request, PBC shall execute, and
cause its shareholders, directors, officers, agents, and/or employees to
execute, reasonable and customary confidentiality agreements with respect
to any such recipes as constitute trade secrets. PBC shall not, without
prior written approval of PMID, use any recipe furnished hereunder for any
purpose other than production of the Products pursuant to this Agreement.
4. Facilities & equipment. PBC shall maintain and utilize all facilities,
equipment, and processing aids and materials required to manufacture and
pack the Products in accordance with good manufacturing practices and to
perform customary laboratory work during and after processing, all within
PBC's brewery premises at Portland, Oregon.
5. Segregation of processed goods. PBC shall grant no security interests in
the Products, shall not commingle any of the Products with any other malt
beverages, shall clearly xxxx all containers of the Products at all times
to indicate that the Products are produced for PMID, and shall promptly
upon request execute such documents as PMID may deem necessary or
convenient to memorialize the status of the products.
6. Costs & expenses. PBC shall bear all expenses of producing, packing, and
delivering the Products as provided herein. PMID may select and purchase,
subject to reimbursement by PBC, any supplies, raw materials, processing
aids, or other goods or services required for PBC to produce the Products
to PMID's quality standards.
7. Aesthetic decisions. PBC shall at all times continue to exercise actual and
legal control of the bonded premises, shall be the sole producer of the
Products at its premises, and shall have the
PRODUCTION AGREEMENT - 2
exclusive right to do any act upon the premises for which a xxxxxx license
or authorization letter is required. PBC agrees, to the extent consistent
with the foregoing, to give effect to the aesthetic decisions of PMID and
other proprietors of the Trademarks with respect to production and handling
of the Products, and to give PMID and its representatives such access to
the premises as may be required to carry out the purposes of this
Agreement.
8. Packaging materials. PBC will use only cases, cartons, containers, labels,
closures, and related materials approved in advance or furnished by PMID in
bottling and packing the Products. PBC will use such change parts provided
by PMID for PBC's equipment as may be required to bottle and pack the
Products as required hereby.
9. Certain obligations.
9.1. Access to premises: PMID may come upon the premises at reasonable
times to examine and taste the Products and, in PMID's discretion, to
conduct such tests and evaluations of the conditions of manufacture
and storage as are consistent with good manufacturing practices.
9.2. Standard of care: PBC shall conduct all its operations affecting the
Products at all times in accordance with good manufacturing practices
and with industry standards for hand-crafted top quality microbrew
products. PBC shall be responsible for defects arising from acts or
omissions of PBC occurring on the premises, regardless of when such
defects become apparent.
9.3. Quantities: PBC shall supply PMID's requirements for the Products, but
shall not be required to add capacity to accommodate orders.
10. Prices. PBC shall sell the Products to PMID or to such other lawful
purchaser as may be designated by PMID at the prices specified by PMID, FOB
PBC's dock in Portland, Oregon, in pallets meeting PMID's specifications,
provided, that such prices shall be no less than:
10.1. For the period from August 1, 2004 through December 31, 2005, PBC's
cost of production as reported to Pyramid plus fifty cents ($0.50) per
barrel.
10.2. For the period from January 1, 2006 until expiration or earlier
termination of this Agreement, the sum of:
10.2.1. An amount equal to PBC's Costs of Production, as defined in
Section 11 hereof and calculated in accordance with Section 12
hereof, plus
10.2.2. One dollar ($1.00) per barrel of beer produced hereunder and
removed from PBC's said brewery premises at the instance of PMID,
which sum shall be increased on January 1 of each year during the
term hereof, beginning 2007, by three percent (3.0%) of the
previous year's amount.
11. Costs of Production. Costs of Production will include the following:
11.1. all of PBC's actual costs incurred pursuant to the Sublease and the
Alehouse Sublease;
11.2. all of PBC's actual costs incurred pursuant to the Staffing
Agreement;
11.3. all of PBC's actual costs incurred pursuant to the Management
Agreement;
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11.4. All of PBC's actual costs incurred in procuring any raw materials,
ingredients, packaging or other supplies required in the production of
the Products;
11.5. All of PBC's actual costs incurred in producing, packing, and
delivering the Products as provided herein;
11.6. all of PBC's actual costs incurred in connection with the application
for and maintenance of any licenses, bonds, xxxxxx'x letters and any
other governmental authorizations required to comply with applicable
law to conduct the activities contemplated in this Agreement and the
other agreements referenced herein, and any actual costs associated
with any agency review, audit or other compliance procedure in
connection with such licenses and authorizations;
11.7. All of PBC's actual insurance costs incurred in connection with its
activities contemplated in this Agreement, including (i) costs
incurred in procuring any insurance policies (including without
limitation, tort liability, products liability, workers' compensation,
employment liability, premises liability, and dram shop liability)
that PBC reasonably deems necessary to insure against any risk
associated with PBC's conduct of business as contemplated herein; and
(ii) deductible amounts and uninsured losses paid by PBC in connection
with claims resulting from the activities contemplated in this
Agreement.
11.8. All of PBC's professional fees (including legal and accounting fees)
attributable to the preparation, execution and administration of this
Agreement and the other agreements referenced herein and the
activities contemplated thereby, including all past and future
professional fees incurred in connection with required compliance with
the laws and administrative policies governing brewing activities
after July 31, 2004;
11.9. All of PBC's actual costs for the employment of and provision of
benefits to its staff other than those provided under the Staffing
Agreement in order to carry out the activities contemplated in this
Agreement;
11.10. All of PBC's costs incurred in connection with sales and
administration as set forth in Section 18 hereof;
11.11. All of the Trademark License fees set forth in Section 20.2 hereof;
11.12. All excise taxes and other taxes assessed on the Products; and
11.13. Such other out of pocket expenses that PBC may reasonably incur from
time to time in connection with this Agreement and the other
agreements referenced herein.
12. Accounting. Costs of Production will be calculated by PBC on a monthly
basis using sound accounting principles, consistently applied, and PBC will
present an itemized accounting to PMID (with documentation supporting the
calculations) on the fifth business day of each month. If PMID disputes the
accounting or calculations provided by PBC within three business days of
receipt, PMID may engage, at PMID's sole expense, a neutral third-party
independent certified public accounting firm ("INDEPENDENT CPA") to review
PBC's calculations and make a determination as set forth in this Section
12. In the event that such Independent CPA conclusively determines that
PBC's calculations contain material errors, the Independent CPA will
recalculate PBC's Costs of Production for the disputed monthly period using
generally accepted accounting principles, and the Independent CPA's
calculation will be binding upon PBC
PRODUCTION AGREEMENT - 4
and PMID for all purposes hereunder. The cost of the services of the
Independent CPA will be borne by PMID, except that PBC shall pay the cost
of correcting its material accounting errors if the Independent CPA
determines that such errors are solely attributable to PBC or third parties
engaged by PBC, and such cost shall not be included in Costs of Production.
13. Terms of payment. Sums payable hereunder are due 3 business days after
PMID's receipt of PBC's calculation of the Costs of Production, except in
the event of a dispute, in which case payment will be due 3 business days
after the CPA's final calculation of Costs of Production.
14. Records & returns. PBC shall maintain such records, keep in force such bond
or bonds, file such notices and returns, pay such tax obligations, and
supply such documentation and other information as may be required for the
proper and lawful production, packing, labeling, and withdrawal of the
Products hereunder. PMID shall share with PBC such information it may
maintain related to production, inventory, and sale of the Products as it
may maintain, to the extent required for efficient performance of PBC's
obligations under this Agreement. Upon request, PBC shall execute such
powers of attorney as may be necessary or convenient to permit PMID to
apply on PBC's behalf for federal and state label approvals of labels for
the Products bearing the Trademarks, but PBC shall retain primary
responsibility for compliance with all laws related to label approval of
the Products produced at its premises.
15. Packing. PBC shall sterile-bottle the Products that consist of bottled
beer, place the filled bottles in new cartons, and palletize the cartons,
and, for the Products that consist of draft beer, place the beer in sterile
kegs with appropriate closures and bung covers, handling and storing all
containers in accordance with good manufacturing practices for perishable
non-pasteurized malt beverages and PMID's specifications consistent
therewith. PBC warrants it will pack the Products in accordance with
applicable regulations, using such bottling and keg equipment maintenance
and settings as are recommended by the manufacturers of such equipment and
of packaging components, to the extent consistent with good manufacturing
practices.
16. Bottling aliases. PBC will maintain each of the Trade Names as a bottling
name approved in its federal xxxxxx'x letter and as an additional business
name on its state brewing license for so long as is required to carry out
the purposes hereof and will comply with all laws pertaining to the
registration and use thereof in connection with licenses and permits for
the production of beer, but will not otherwise register or treat any of the
Trademarks or any similar name, xxxx, or device as its xxxx, or any of the
Trade Names or any similar trade name as its trade name. If required by
federal regulatory authorities, PBC will register the Trade Names with
state or local agencies as its fictitious names. PBC shall promptly do all
things necessary to cancel or, at PMID's option transfer to PMID or its
designee all such registrations, upon termination of the related trademark
and trade name license herein granted. PBC hereby consents to registration
of each of the Trademarks as its proprietor's brand and xxxx, and of the
Trade Names as such proprietors' trade names, at any time and agrees to
execute upon request all documents necessary or convenient for that
purpose.
17. Insurance. If requested by PMID in writing, PBC shall cause the Products at
its premises to be covered by PBC's applicable insurance policies to the
extent of its replacement value, naming PMID as a party with an interest in
the Products. If PMID elects separately to insure the Products and/or the
equipment, PBC will cooperate in providing such information as an insurer
reasonably may require. If PBC determines in its good faith business
judgment that the insurance policies
PRODUCTION AGREEMENT - 5
requested or procured by PMID are inadequate to insure against any risk
associated with PBC's conduct of business as contemplated herein, PBC shall
have the right to procure additional insurance policies. As set forth in
Section 11.7, any insurance premiums paid by PBC in order to comply with
this Section 17 will be included in Costs of Production.
18. Sales and administration.
18.1. PBC shall cooperate fully with PMID in effecting sale and delivery of
the Products to wholesaler customers to achieve maximum continuity of
distribution at all times. At PMID's election, PBC shall sell the
Products to PMID for resale to distributors, sell the Products
directly to distributors, or adopt such other lawful channels of trade
as PMID may specify.
18.2. Sales agent: PMID shall be exclusive sales agent for all PBC's sales
of the Products. PBC shall do all things necessary to procure such
licensure of PMID's officers, employees, or agents as may be required
by law for said agency. PBC shall cooperate with PMID in procurement
of stationery, business cards, and related items used in acting as
agent for said business.
18.3. Order processing: PBC shall accept such orders for the Products as
PMID may present. PMID shall receive all proceeds of such sales,
applying them first to any sums then due from PBC. PMID will process
all documents required for such transactions and promptly provide to
PBC all records thereof required by law, and PBC shall pay for such
services according to PMID's schedule of prices in effect at the time
of delivery. Current comprehensive fees for order processing and sales
administration are $25.00 per barrel sold. PMID may in good faith and
on thirty (30) days' notice to PBC modify its fees and services with
respect to sales and administration to adjust for costs and value in
its business judgment.
19. Ownership of the Trademarks. The proprietors identified on Exhibit A will
at all times be the sole proprietors of the Trademarks, and all use by PBC
shall be for the sole purpose of labeling and packing of goods to be
identified by the Trademarks for the benefit of PMID. All accretions to the
goodwill or consumer acceptance of any the Trademarks will belong
exclusively to its proprietor, regardless of their cause or source. PBC
covenants that it will not at any time contest or contribute to the
contesting of PMID's or other trademark proprietor's absolute ownership of
any of the Trademarks. Nothing herein shall limit PBC's right to use
trademarks of third parties under license in connection with its contract
brewing operations. Notwithstanding any terms of this Section 19 to the
contrary, PMID's rights and responsibilities with respect to the trademarks
referenced in that certain License Agreement dated January 7, 1994, as
amended, will not be modified by this Agreement.
20. Terms of license to use the Trademarks.
20.1. Licensed activities: The license herein granted is solely to indicate
the source of the Products by the Trademarks and to identify the
business of packing and selling the Products by the Trade Names. No
right to assign, transfer, encumber, or sublicense is created hereby.
Subject to the foregoing limitations, PMID hereby licenses PBC to
affix packaging materials bearing the Trademarks and the Trade Names
to the Products approved as to quality by PMID for sale under the
Trademarks and to introduce such beers into commerce in accordance
with PMID's instructions.
PRODUCTION AGREEMENT - 6
20.2. License fee: The within license by PMID of such of the Trademarks as
it owns is without royalty. With respect to any of the Trademarks for
which PMID pays a royalty or comparable consideration as licensee, PBC
shall pay PMID an equal amount. Said license fee represents PBC's
exclusive cost for such licenses as may be granted herein, and PMID
remains solely responsible for payment of license fees or royalties
due to other proprietors of any of the Trademarks.
20.3. Quality Review: To the extent required to carry out the purposes of
Section 7 hereof, PBC agrees to submit, at PMID's request, samples of
packaging materials procured pursuant to Section 8 hereof for approval
by PMID. PBC agrees to promptly and reasonably respond to all such
requests for submission by PMID, and PMID agrees to promptly and
reasonably respond to all such submissions by PBC. PMID may withhold
approval of packaging materials for the Products for any reason and
may, in its discretion, provide packaging materials, which PBC agrees
to use if requested, any additional costs incurred thereby being Costs
of Production under Section 11 hereof.
20.4. Standards: PBC agrees to maintain such reasonable manufacturing,
servicing and quality standards as may from time to time be requested
by PMID. PBC shall Not associate any of the Trademarks with any
products, including without limitation packaging, that are not
approved as to quality by PMID in its sole discretion. PBC will assure
PMID that packaging materials for the Products manufactured and/or
sold by it meet or exceed the quality and specifications of the
samples approved by PMID.
20.5. Termination: The within license for PBC to use the Trademarks and the
Trade Names will remain in force until terminated by PMID. PMID may
terminate this license at any time by giving PBC notice thereof.
21. Legal compliance.
21.1. General obligation: The parties will obey all applicable laws in
carrying out the purposes of this Agreement and cooperate with one
another in monitoring and assuring compliance therewith.
21.2. Excise tax returns: PBC shall include the Products in all PBC's
reports of operations and excise tax returns. All excise tax payments
made by PBC related to the Products will be included in Costs of
Production as set forth in Section 11.12. PBC will exercise reasonable
business efforts to include removals of the Products within the first
sixty thousand barrels of malt beverages subject to federal excise tax
removed from PBC's brewery premises during each calendar year.
22. Arbitration. If any dispute occurs between PBC and PMID relating to this
Agreement or the other agreements referenced herein, the parties will
endeavor to resolve the matter equitably, engaging if useful the services
of a third party who is an expert in microbrewing for the accounts of
others as an informal arbitrator. If not so settled within a time
satisfactory to the parties, each having discretion therein, either party
may submit the dispute to binding arbitration before a single arbitrator in
Portland, Oregon. If the parties agree on an arbitrator, the arbitration
will be held before the arbitrator selected by the parties. If the parties
do not agree on an arbitrator, each party will designate an arbitrator and
the arbitration will be held before a third arbitrator selected by the
designated arbitrators. Each arbitrator will be an attorney knowledgeable
in the area of
PRODUCTION AGREEMENT - 7
business law. The arbitration will be conducted in accordance with the
then-current rules of Arbitration Service of Portland. The resolution of
any controversy or claim as determined by the arbitrator will be binding on
the parties. A party may seek from a court an order to compel arbitration,
or any other interim relief or provisional remedies pending an arbitrator's
resolution of any controversy or claim. Any such action or proceeding will
be litigated in courts located in Multnomah County, Oregon. For the
purposes set forth in this Section 22, each party consents and submits to
the jurisdiction of any local, state, or federal court located in Multnomah
County, Oregon.
23. No duty of performance hereunder will be diminished or suspended because of
any pending arbitration, and all rights of the parties to legal and
equitable relief with respect to matters not expressly made subject to
arbitration hereunder are fully preserved.
24. General provisions.
24.1. Integration: This Agreement and the Sublease, Alehouse Sublease,
Equipment Lease, Staffing Agreement, Management Agreement, and
Indemnity Agreement constitute the complete agreement between the
parties with respect to the custom brewing of beer and the
administration of sales thereof and supersede all prior agreements,
understandings and representations, oral or written, if any, between
the parties, the parties expressly agreeing that except with respect
to warranties and representations expressly set forth herein they rely
entirely upon their own judgment and are satisfied that they have had
adequate opportunity to examine and consider all matters pertaining to
the premises. The captions are for convenience only and are not part
of this Agreement, nor shall they be used in interpreting the
Agreement. This Agreement may be modified only by subsequent writing
signed by both parties.
24.2. No waiver: Failure in any particular instance to exercise any right
hereunder or to object to any breach hereof will not constitute waiver
of any such right or of any remedy or affect the enforceability or
interpretation of any obligation of a party hereto.
24.3. Assignment: This Agreement binds and benefits the heirs, successors,
and assigns of the parties. The parties may assign rights hereunder,
but no duty hereunder may be delegated without the prior written
consent of the other party.
24.4. Notice: Notice hereunder is effective if given by first class mail
addressed to the party to be notified at its principal place of
business in the United States with a required copy to legal counsel.
24.5. Venue and Choice of Law: This Agreement will be governed by the law
of the State of Oregon applicable to agreements made and entirely
performed in said state. The parties consent to venue of any action
brought hereunder in Multnomah County, Oregon.
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PORTLAND BREWING COMPANY PYRAMID BREWERIES INC.
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By: R. Xxxxx XxxXxxxxxxx By: Xxxx Xxxxxx
Its: President Its: President and
Chief Executive Officer
PRODUCTION AGREEMENT - 9
EXHIBIT A
TRADEMARKS AND TRADE NAMES
TRADEMARKS:
The distinctive graphic elements of such labels and other packaging elements as
PMID may from time to time specify, and the following word marks:
LICENSE GRANTED PURSUANT TO:
TRADEMARK OWNER (NAME/DATE OF AGREEMENT)
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Xxxxxx Xxxxxx Pyramid Breweries, Inc.
Xxxxxx Xxxxxx Soda Co. Pyramid Breweries, Inc.
Pyramid Pyramid Breweries, Inc.
Pyramid Curve Ball Pyramid Breweries, Inc.
Snow Cap Ale Pyramid Breweries, Inc.
Pyramid Ales & Lagers Pyramid Breweries, Inc.
Pyramid Alehouse Pyramid Breweries, Inc.
Pyramid Breweries Pyramid Breweries, Inc.
Mac's Pyramid Breweries, Inc.
MacTarnahan's Pyramid Breweries, Inc.
Portland Pyramid Breweries, Inc.
Portland Brewing Pyramid Breweries, Inc.
TRADE NAMES:
RIGHT TO USE GRANTED PURSUANT TO:
TRADE NAME OWNER (NAME/DATE OF AGREEMENT)
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Pyramid Brewing Co. Pyramid Breweries, Inc.
Xxxxxx Xxxxxx Brewing Co. Pyramid Breweries, Inc.
MacTarnahan's Brewing Co. Pyramid Breweries, Inc.