Co-Manufacturing, Sales and Distribution Agreement, dated August 4, 2011, between Bellisio Foods, Inc. and Overhill Farms, Inc

Exhibit 10.22

 

 

This Co-Manufacturing, Sales, and Distribution Agreement (this “Agreement”) is made and entered into as of July 1, 2011 (the “Effective Date”), by and between Bellisio Foods, Inc., (“Bellisio”), a Minnesota corporation with offices located at 1201 Harmon Place, Suite #302, Minneapolis, Minnesota 55403, and Overhill Farms, Inc. (“Overhill”), a Nevada corporation with offices located at 2727 East Vernon Avenue, Vernon, California 90058.  Bellisio and Overhill may be referred to herein each as a “party” and, collectively, as the “parties”.

WHEREAS, Overhill has entered into a license agreement with Boston Market Corporation, with an effective date of July 1, 2011 (“BMC License”), whereby Overhill has the right to manufacture, sell and distribute Boston Market frozen food products, and furthermore has the right to contract with a third party of its choice for the co-manufacture, sale, and distribution of such products;

WHEREAS, the parties desire Bellisio to co-manufacture, sell and distribute certain Boston Market branded frozen food products for Overhill, under the terms and conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual benefits, covenants, and promises contained in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by both parties hereto, Bellisio and Overhill, intending to be legally bound, agree as follows:

1.             PRODUCTS

(a)           Co-Manufacturing.  Bellisio shall have the right to co-manufacture, at all times throughout the term of this Agreement, approximately fifty percent (50%), within a five (5%) percentage point variance of fifty percent (50%), of the total production volume for the eighteen (18) different Boston Market branded food products identified on Schedule A to this Agreement (collectively, the “Products”), with the remaining approximately fifty percent (50%) of total production volume being manufactured by Overhill or their designee, subject to 6. (d). Upon mutual agreement of the parties, additional products may be added as Products from time to time by signing an amended Schedule A identifying those products and the agreed upon pricing terms applicable to them. Discontinued Products shall be considered removed from Schedule A and removed as Products upon written notification from Overhill.

(b)           Sales and Distribution.  Bellisio shall have exclusive responsibility for sales and distribution of all Boston Market brand frozen food products that are subject to the BMC License, including but not limited to the Products, then currently being manufactured by either party, under the terms and conditions set forth in this Agreement.

(a)           Term.  The term of this Agreement shall begin on the Effective Date and continue for a period of:

(i) Two (2) years where the Brand P&L (as defined in section 12 herein) equals a profit of $2,000,000 or more (excluding the cost of new item placement and television and print advertising costs expensed to the Brand P&L for the first twelve (12) month period from the Effective Date), and continuing thereafter on an annual basis on each anniversary of the Effective Date unless terminated by either party by providing at least six (6) months advance written notice to the other party.

(ii) Eighteen (18) months where the Brand P&L shows a profit of less than $2,000,000 excluding the cost of new item placement and television and print advertising expensed to the Brand P&L for the first twelve (12) month period from the Effective Date, and continuing thereafter on an annual basis on each anniversary of the Effective Date unless terminated by either party by providing at least one hundred twenty (120) days advance written notice to the other party.  In the event the previous Boston Market Licensee continues to distribute Boston Market brand products in the marketplace after the Effective Date of this Agreement, and continuing for thirty (30) days or more beyond such date, this section shall be null and void and have no affect whatsoever.  In such circumstance, the term of the Agreement shall be determined by section 2(a)(i) above.

(b)           Termination Due to Acquisition by Direct Competitor.  Either party shall have the right to terminate this Agreement if either Overhill or Bellisio is party to a Competitor Acquisition (as defined below), upon the terminating party providing at least six (6) months advance written notice to such other party. Each party has an affirmative obligation to disclose to the other party the fact that a Competitor Acquisition will occur, such disclosure to be made within two (2) business days after the execution of a definitive agreement concerning a Competitor Acquisition.   A “Competitor Acquisition” means a transaction or series of transactions whereby a Direct Competitor (as defined below) of the terminating party acquires, directly or indirectly, (i) substantially all of the assets of the other party, (ii) more than thirty-five percent (35%) of the voting equity of the other party, or (iii) the right to appoint one or more board members or board observers to the board of directors or similar governing body of the other party.  The parties consider the following to constitute the exclusive list of their respective Direct Competitors for purposes of this section:

 

Direct Competitors of Bellisio:

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4.             MANUFACTURE FORECASTING

 

Every week the parties shall generate a rolling eight (8) week production forecast for the following eight weeks, which shall provide the basis of production capacity planning in each of the parties’ respective manufacturing facilities.  Additionally, on a rolling basis the first four (4) weeks of the production forecast is considered binding. Week one (1) of this binding forecast is fixed, the remaining three (3) weeks ,  may be adjusted   for plant efficiency purposes, so long as the four (4) week binding production forecast by product is attained. In the event agreement is not reached in a timely manner, Bellisio shall have authority to determine and allocate their production capacity of Bellisio-manufactured Products based on purchase orders received from customers. However, freight and distribution costs charged to the Brand P&L shall be based on receipt date pursuant to section 12 (c).

On a weekly basis Bellisio will issue Purchase Orders or other required documentation to Overhill for shipment of finished goods to Bellisio’s Facility. The document for this purpose will be the “Boston Market Master Schedule” provided by Bellisio Foods. In the event either party chooses to produce in excess of the eight (8) week forecast, that party will bear any responsibility for obsolescence and associated storage and handling cost.

5.             SOURCING MATERIALS; INVENTORY RESPONSIBILITY

(a)           Procurement.  Each party shall source and procure all labor, raw materials, ingredients and packaging materials required for the manufacture, production, processing, packaging, and transport/shipping of the Products consistent with production schedules described in section 4. If either party is required to purchase quantities of such materials and/or packaging in excess of the eight (8) week production forecast schedule due to minimum order requirements and/or purchasing lead times, such party will first obtain the written approval of the other party. All procurement and purchases for the Products shall be made consistent with the party’s standard practices including, but not limited to, standard practices relating to vendor managed inventory, certificates of analysis, and raw material specifications. Overhill shall have sole responsibility for designing, supplying, and obtaining any required approvals for all Product labels, with the associated costs charged to the Brand P&L. The purchase of all ingredients, raw materials, packaging, and other components of the Products shall be optimized by agreement of the parties such that purchases are made on the basis of procuring the best component at the least cost including the cost of shipping to the manufacturing facilities of the respective parties. However, neither party shall be required to purchase raw material or packaging from a vendor that it objects to on the basis of quality concerns, and shall have no liability whatsoever arising from quality issues resulting from raw materials purchased by the other party from a supplier approved by the parties in accordance with the immediately preceding sentence. Any costs or losses resulting from raw materials rejected by either party on the basis of quality concerns shall be borne by the supplier.

(b)           Inventory Due to Product Discontinuation.  In the event a Product is discontinued, each party shall use its best efforts to maximize use of any remaining raw materials and to sell any remaining Products through current customers or discount channels. If the discontinued Product cannot be sold through the former channels, it may be re-packaged and sold under a non-Boston Market brand by the party that has possession of and title to the Product subject to the terms and conditions of the BMC License.  Thereafter, the cost/loss associated with any remaining Product, raw materials and/or packaging shall be expensed to the Brand P&L so long as the remaining Product, raw materials and packaging were purchased in quantities consistent with agreed upon production schedules, consistent with sections 4 and 7 herein.

(c)           Inventory Due to Voluntary Termination.  In the event either party voluntarily terminates this Agreement pursuant to section 2(a) and/or 2(b) herein, any remaining raw materials, packaging, and Product inventory shall be purchased at cost by Overhill and shipped by Bellisio to Overhill, the cost of such purchase and shipment to be paid by Overhill, so long as the remaining finished Product, raw materials and packaging were purchased in quantities consistent with the agreed upon production schedules, consistent with sections 4  and 7 herein.

(d)           Inventory Due to Breach.  In the event Bellisio terminates this Agreement due to Overhill’s uncured material breach, Overhill shall purchase from Bellisio all remaining raw materials, packaging and all Products at cost  so long as the remaining raw materials, packaging, and Products were purchased and manufactured in quantities consistent with agreed upon production schedules, consistent with sections 4 and 7 herein. The costs of such purchases shall not be expensed to the Brand P&L.  In the event Overhill terminates this Agreement due to Bellisio’s uncured material breach and Overhill continues to manufacture the Products, Overhill shall purchase from Bellisio all remaining raw materials, packaging and Products at cost so long as the raw materials, packaging and Products were purchased and manufactured in quantities consistent with agreed upon production schedules consistent with sections 4 and 7 herein, unless the breach was due to a verifiable and uncured Product safety breach.

 

(b)           Sale of Products.  Bellisio shall use its best efforts to distribute the Products and develop the market for the Products in accordance with the parties’ agreed upon marketing goals, including implementing sales promotions, price management, new product introductions, and merchandising/execution.

(c)           Customer Orders and Invoicing. Bellisio shall receive and enter customer purchase orders, handle all customer invoicing and customer billing reconciliation and cash collection, and schedule production based on customer orders.

(d)           Business Management.  Bellisio shall be responsible for all business management responsibilities including the following:

 

 

(e)           Trade Spend Management. Overhill has final approval rights as to all  sales, marketing, and promotion expenditures. Bellisio shall be responsible for all trade spend management for the Products, including the following:

(f)           Warehousing/Handling/Storage of Products.  Bellisio shall be responsible for warehousing, handling, and storing the Products, including the following:

(g)           Inspection Of Products from Overhill.  Upon receipt of a shipment of Products from Overhill, Bellisio shall visually examine a random sampling of the Products, in a manner consistent with its standard operating procedures, to determine whether there are any issues relating to shortage or defects clearly visible to the naked eye under ordinary inspection conditions. Bellisio will communicate to Overhill any Product shortages or defects and all resulting losses and costs shall be borne by Overhill

(h)           Freight Distribution.  Bellisio shall ship all Products with combined loads

of Bellisio’s frozen food products, where appropriate, and shall be subject to the same freight distribution policies as the Bellisio products including full pallet quantities with fourteen (14) day lead times, LTL orders, and minimum shipments of 600 cases.  Freight cost allocation for the Products, including fuel surcharge and fluctuations, will be determined on a pro rata basis with the Bellisio frozen food products and will be paid or incurred by Bellisio but charged to the Brand P&L.

 

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(a)           Transition from Previous Boston Market Licensee.   All trade deductions related to Boston Market promotions and/or other costs and expenses related to Boston Market brand product sales/marketing activity incurred prior to July 1, 2011 and deducted by customers from Bellisio generated invoices shall be promptly reimbursed to Bellisio by Overhill within five (5) business days.  These costs, expenses, and/or deductions shall not be charged to the Brand P&L. In the event Overhill purchases Boston market brand product inventory from previous Boston Market Licensee or from Boston Market Corporation, Overhill will provide the working capital to fund such purchases., including freight costs and expenses to Bellisio’s Facility  Overhill may elect to provide ongoing working capital throughout the term of this Agreement, as previously stated above, to minimize Interest.

(b)           Transition Upon Termination of Agreement.  Upon termination of the Agreement, Bellisio shall withhold 120% of sales deductions, including but not limited to discontinued Products, spoilage, shortages, defects, and unauthorized trade deductions, as estimated in Bellisio’s reasonable discretion based on prior historical experience.  Remaining funds will be released in the following manner:

 

Each party shall maintain comprehensive general liability insurance that shall include contractual liability coverage and product liability coverage for the Products sold and distributed pursuant to this Agreement, having a combined single claim limit of not less than $*** per occurrence and total umbrella coverage of not less than $***.  Each party shall arrange to have the other named as an additional insured on their respective policies, and shall ensure that such insurance remains in effect at all times when this Agreement is in effect and for a period of no less than two (2) years after the termination of this Agreement.

Each party agrees to defend, indemnify and hold harmless the other from and against any and all claims, liabilities, costs, damages and expenses arising out of, based upon, or in connection with each party’s respective obligations set forth in this Agreement or under the law. In addition, each party shall be responsible for its own attorney’s fees and expenses. As a condition of indemnification, the party seeking indemnification shall give the indemnifying party prompt notice of and copies of all pleadings and correspondence related to any such claim and agrees not to settle, compromise, or otherwise dispose of any such claim without the prior written consent of the indemnifying party, such consent not to be unreasonably withheld or delayed. The indemnifying party shall have the right (but not the obligation) to assume the defense or settlement of any such claim at its expense, by counsel of its choice. If the indemnifying party assumes such defense, the party seeking indemnification shall cooperate fully with the indemnifying party in defense of the action.

Furthermore, Overhill agrees to defend, indemnify and hold harmless Bellisio from and against any and all claims, liabilities, costs, damages and expenses arising out of, or based upon, or connected in any way to the validity or enforceability of the BMC License, Bellisio’s use of the BMC intellectual property as contemplated by and in strict accordance with this Agreement, and/or any other actions taken by Bellisio in strict conformance with the terms of this Agreement that are alleged to constitute a violation of the BMC License, the rights of a third party, or the law.

       Any notice pursuant to this Agreement shall be in writing and delivered via confirmed overnight delivery to the following:

 

 

Neither party may assign or transfer this Agreement, whether by merger, acquisition or having all or any controlling portion of its stock purchased by another entity, or, except as expressly permitted by this agreement, subcontract any of its performance obligations hereunder, without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided that it shall be reasonable for either party to withhold its consent to any such assignment or transfer of this Agreement where that assignee is a Direct Competitor (as identified in section 2(b)) of the party that is withholding its consent.  However, upon expiration of the six (6) month notice requirement described in section 2(b), consent to the assignment or transfer shall be deemed granted and the party withholding consent shall have the right, again as described in section 2(b), to terminate the Agreement. Notwithstanding the preceding sentences, Overhill and Bellisio may each assign this Agreement to any of its parent, subsidiary or commonly-owned affiliate companies without the prior written consent of the other party by providing written notice of that assignment to the other party.   This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors and assigns.

No waiver by either party of any provisions hereof shall be made unless expressed in writing and signed by a duly authorized officer of such party.

Neither party shall be liable for loss or damage or deemed to be in breach of this Agreement if their failure to perform obligations results from: acts of God; acts of terrorism; compliance with governmental authority; fires, strikes, embargoes, war; or any other similar event or cause.  Any delay resulting from any of said causes shall extend or excuse performance, in whole or in part, as may be reasonable, except that said causes shall not excuse payments for amounts owed at the time of such occurrence.

If any provision of this Agreement should be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity and enforceability of the remaining provisions of this Agreement. The parties hereto shall in such event use their best efforts to substitute for any invalid or unenforceable provision a valid and enforceable arrangement that achieves results as nearly equivalent as possible to the invalid or unenforceable provision.

The employees, agents or subcontractors of one party shall not be considered the employees or subcontractors of the other party.

 

This Agreement may be executed in one or more counterparts, each of which shall be considered an original.

The laws of the State of California, without reference to its conflicts of laws provisions, shall govern the application and interpretation of this Agreement and any disputes, actions, or claims arising hereunder shall be brought in the federal district court for the central district of California.

24.           DISPUTE RESOLUTION

Any dispute between the parties arising under or in connection with this Agreement shall be resolved as follows:  (a) first, the senior managers of Overhill and Bellisio shall negotiate in good faith in an attempt to resolve the dispute if the dispute has not been resolved by the mid-level managers involved in the matter within thirty (30) days of those mid-level managers first attempt to resolve the dispute;  (b) second, if the senior managers of the parties are unable to resolve the dispute after ten (10) business days of good faith negotiations, then the parties shall participate in mandatory mediation with a mutually agreeable mediator; (c) third, if the parties are unable to resolve the dispute after one full day of mediation, then either party may file a lawsuit to resolve the dispute.

25.           CONSTRUCTION

This Agreement shall be construed as having been negotiated and jointly drafted by the parties hereto, and shall not be construed against either party based upon either party being deemed the drafter of the Agreement.

This Agreement expresses the entire agreement of the parties relating to the subject matter contained herein. No modifications, amendments or supplements to this Agreement shall be effective for any purpose unless in writing and signed by authorized representatives of all parties hereto or their successors or assigns.

IN WITNESS WHEREOF, The undersigned representatives of each of the parties have executed this Agreement as of the date first written above.

 

 

 

 

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***           This page has been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

 

 

 

 

 

***           Four pages have been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission.

 

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