EXHIBIT 10.2
SECOND AMENDED AND RESTATED PROCESSING AGREEMENT
THIS SECOND AMENDED AND RESTATED PROCESSING AGREEMENT (this
"Agreement") is entered into effective October 30, 2009 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 at ▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇., ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇, (the "SPI PROCESSING FACILITY"); and
WHEREAS, SMF is the owner 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; 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 and updated from time to time by mutual agreement (the "PRODUCTS"), to
certain quality standards and in certain quantities; and
WHEREAS, SMF wishes to secure the rights to construct an additional
building adjacent to the existing SPI Processing Facility to host additional
smoker-oven systems and related equipment to facilitate SMF's future growth; 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
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(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)
(the "Smoker-Oven System") and such other furnishings and equipment as in the
judgment of SMF are necessary for the proper operation of the Smoker-Oven
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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").
(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 Sections 8(b) and 8(c) hereof, 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").
(d) SPI agrees to provide a reasonable amount of space for a desk,
chairs and file cabinet in the SPI Processing Facility for exclusive use by the
quality control supervisor to be employed by SMF; SMF will pay any salary,
telephone and Internet charges associated with such employee.
2. EXPANSION OPTION
----------------
(a) At any time during the term of this Agreement, SMF shall have the
option (the "Addition Option") to construct, at its own expense, an up to
80,000,000 square foot building (the "Additional Building") adjacent to the
Modified Space and Related Areas. The permitted use of the Additional Building
shall be the installation of one or more smoker-oven systems (the "Additional
Smoker-Oven Systems") and such other furnishings and equipment as in the
judgment of SMF are necessary for the proper operation of the Additional
Smoker-Oven System(s), including electrical and gas monitoring meters, control
devices, stainless steel grates and grate carriers, as well as related staging,
packaging, grate washing area, refrigeration, freezing, office and other areas.
SMF shall retain all ownership rights to the Additional Building and related
equipment, and shall bear all costs related to the construction and furnishing
of the Additional Building with the Additional Smoker-Oven Systems and related
equipment.
(b) Upon SMF's exercise of the Addition Option, SMF and SPI shall
consult with respect to the exact location of the Additional Building,
connections of the Additional Building to the Modified Space, and other matters
necessary to enable the construction of the Additional Building and its use in
conjunction with the Additional Space. Upon reaching agreement with respect to
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such matters, SMF and SPI shall enter into a lease agreement pursuant to which
SPI shall lease to SMF the land underlying the Additional Building, a 20 foot
buffer zone around the Additional Building, as well as standard rights of access
and parking necessary to use to Additional Building. The term of the lease shall
be 99 years, and the annual rent shall be $1.00 per year, plus a prorated share
of property taxes and common area maintenance costs. In addition, SMF and SPI
shall consult with respect to fee and compensation rates related to the
operation by SPI of any Additional Smoker-Oven Systems and shall enter into such
additional agreements, or amendments to this Agreement, as are necessary to
reflect such arrangements.
(c) As a condition to the obligation of SPI to enter into the lease
with respect to the Additional Building or permit the commencement of
construction, the Company shall provide proof of financing sufficient to pay all
construction costs of the Additional Building. Proof of financing may include,
without limitation, placing sufficient funds to complete construction in a
segregated account or establishing a letter of credit.
(d) In addition, SPI and SMF shall work together to ensure that the
Additional Building is 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 in the Additional Building, including but not limited to those
regulations promulgated by state and local health authorities and the USDA.
(e) Except as expressly set forth in this Agreement or in a future
agreement or amendment agreed to by SMF and SPI in writing, references to the
Smoker-Oven System in the remainder of this Agreement shall not including the
Additional Smoker-Oven Systems.
3. EXCLUSIVITY
-----------
(a) SMF and SPI agree that, subject to the provisions of Section 3(b),
SPI shall be the exclusive Processor of the Products for SMF. SPI's exclusivity
rights shall not apply to any side dishes, sauces or other items not identified
as "Products" hereunder.
(b) SMF may terminate the exclusivity provisions of Section 3(a)
(without being required to terminate this Agreement) upon the occurrence of any
of the following: (i) SPI's failure to satisfy SMF's material requirements for
Products; (ii) SPI's in material breach of its obligations under this Agreement
if SPI fails to cure such breach within thirty (30) days of its receipt of
written notice identifying the same; and (iii) if the SPI Processing Facility is
closed down by any governmental agency for safety or sanitary reasons or
otherwise determined by an governmental agency with jurisdiction, court or
arbitration panel to be unsafe, unsanitary or in violation of material
regulations governing its operation, for a period of three weeks or longer,
unless processing of the Products is being done by another facility with whom
SPI has an agreement for the same.
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4. 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. 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
upon reasonable written notice 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.
(d) SPI agrees to supply (and package) all Product required by SMF up
to the maximum amount of Product that can be produced using the Smoker-Oven
System for two 10-hour shifts daily. SPI will not, however, operate the
Smoker-Oven System if SMF's quality control supervisor is not present or if
written 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.
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(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.
5. COMPENSATION TO SPI
-------------------
(a) For completed and packaged Products which are in compliance with
SMF's specifications, SMF will pay to SPI a processing fee (the "Processing
Fee") equal to the sum of (i) SPI's actual cost of meat and other tangible
Product inputs, (ii) SPI's direct labor cost, (iii) SPI's direct packaging
materials costs, (iv) Allocated Overhead (as defined below), and (v) $0.45 per
pound of completed and packaged Product. Allocated Overhead shall initially be
$0.30 per pound of completed and packaged Product but shall be subject to
quarterly adjustment upon mutual written agreement of SPI and SMF.
(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 five business days.
(c) This Section 5 shall not apply to the operation of the Additional
Smoker-Ovens, which operation shall be addressed in a separate agreement or
amendment.
6. WARRANTY
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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
United States Food, Drug and Cosmetic Act, and will comply with all applicable
labeling and food processing standards of the USDA.
7. 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. At a minimum, at such time as SMF's monthly revenue has been
$100,000 or more for three consecutive months, SMF shall purchase and maintain
an insurance policy providing for aggregate products liability coverage of at
least $2 million and aggregate general liability coverage of at least $5
million.
(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.
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(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.
(e) SMF agrees to indemnify, defend, and hold harmless SPI from all
claims, suits, expenses (including attorneys' fees and expenses), losses,
liabilities, damages and settlements arising out of, or in connection with any
claim that the recipes, formula, packaging or other aspects of the Products
infringe upon the proprietary or other rights of any third party.
8. TERM OF AGREEMENT
-----------------
(a) The term of this Agreement 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 hereto, 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.
(c) If for any reason SPI sells its business or substantially all of
its assets used in connection with its meat processing business (whether by
asset sale, stock sale, merger, share exchange or any other structure), the
surviving entity shall be required to assume all obligations of SPI under this
Agreement. If for any reason SPI ceases its operations prior to the termination
of this Agreement (other than in transaction described in the preceding
sentence) SPI will use its best efforts to take such steps as are reasonably
necessary to permit SMF to continue the production of Product by SMF using the
Smoker-Oven System in the Modified Space and the Related Areas and, if
applicable, the Additional Building. This shall include, without limitation, the
taking of such steps as are necessary (including possible the transferring
related permits, assets or equity interests to SMF) to permit SMF to utilize or
operating under SPI's meat production licenses and permits. For the use of the
Modified Space, the Related Areas, related equipment and, as applicable, the
transfers of permits or other interests, SMF will pay to SPI monthly rent of
$25,000.
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9. 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.
10. 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 express courier such as Federal Express 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 or
facsimile number 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 express courier shall be effective upon receipt. A
notice under Section 10(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.
(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.
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(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 (including by operation of law, merger or otherwise) without the
written consent of the other party, 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 and shall not apply to the
transfer of SPI or substantially all of its assets to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ provided
that the successor entity assumes all rights and obligation of SPI hereunder.
(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 Amended and Restated
Processing Agreement dated July 1, 2006 between the parties hereto.
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IN WITNESS WHEREOF, the parties have executed this Second Amended and
Restated Processing Agreement on the date first written above.
SMOKY MARKET FOODS, INC.
By /S/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, CEO
▇▇▇▇ ANN'S SPECIALTY FOODS, INC.
By /S/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
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EXHIBIT A
PRODUCTS
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ENTREE ITEMS
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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
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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
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Pork Country Rib Strips
Pork Ribletts
Carved Chicken Strips
Chicken Drummies (Regular & Teriyaki)
Lamb Ribletts Teriyaki
SIDE ORDER FOODS
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Hickory Smoke-Baked(TM) Beans
Sweet Butter-Creamed Corn
Creamy-Garlic Coleslaw Dressing & Veggie Dip
Southern-Style Barbecue Dipping Sauce
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