EXHIBIT 10.2
PRODUCTION AGREEMENT
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THIS PRODUCTION AGREEMENT (the "Agreement") is made and entered into as of
January 27, 1998, by and between BARIATRIX INTERNATIONAL, INC., a Vermont
corporation ("Bariatrix") and BIO-ENGINEERED FOODS, INC., a Delaware corporation
("BFI").
RECITALS
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A. Bariatrix is in the business of producing nutritional food products.
BFI is in the business of distributing such products.
B. Bariatrix has produced certain products for distribution by BFI under
a series of Production Agreements, the most recent of which was dated November
13, 1996 (the "Prior Agreement").
C. The parties wish to provide for the ongoing production of products by
Bariatrix for BFI on the terms and conditions set forth herein.
AGREEMENT
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NOW, THEREFORE, the parties hereto, for good and sufficient consideration,
the receipt of which is hereby acknowledged, and intending to be legally bound,
do hereby agree as follows:
1. DESCRIPTION OF PRODUCTS
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The products to be produced by Bariatrix under this Agreement for sale to
BFI (the "Products") shall consist of the following:
1.1 The nutritional bars currently produced by Bariatrix to match the
nutritional profiles and names provided by BFI, as identified on Schedule 1 to
this Agreement, including any new flavors or sizes thereof ("Bars");
1.2 The nutritional drink mixes currently produced by Bariatrix to match
the nutritional profiles and names provided by BFI, as set forth on Schedule 1
to this Agreement, including any new flavors or sizes thereof ("Mixes");
1.3 Any new or additional products mutually agreed to in writing by the
parties hereto.
*Confidential portions omitted and filed separately with the Commission.
1
2. PRODUCTION QUANTITIES
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2.1 During each calendar month during the term of this Agreement, BFI
will order from Bariatrix and accept delivery of, at a minimum, [ * ] Bars.
BFI will order from Bariatrix and accept delivery of, at a minimum, [ * ]
Bars during each calendar year during the term of this Agreement, commencing
with the calendar year ending December 31, 1998.
2.2 During the term of this Agreement (as set forth in Section 12), BFI
will provide to Bariatrix a purchase order for the Products it wishes to
purchase during the period stated in such purchase order. Subject to the
provisions of Section 2.5 below, Bariatrix will produce and deliver such
Products in accordance with the terms and conditions of the purchase order,
within a variation of plus ten percent (10%) and minus five percent (5%) from
the total quantity specified in the purchase order for each flavor. Bariatrix
will invoice BFI on the actual amount delivered and accepted by BFI. The actual
production and delivery of Products will be coordinated pursuant to the
production scheduling process described in Section 2.5 below.
2.3 Bariatrix agrees to produce not less than [ * ] Bars per calendar
month, to the extent ordered by BFI under Section 2.2. Upon 30 days' prior
written notice by BFI to Bariatrix, Bariatrix will increase its minimum monthly
production capability to 4 million Bars. Bariatrix will use all commercially
reasonable efforts to fill orders in excess of the monthly minimum requirement
set forth in this Section. The quantities of the Bars produced by Bariatrix in
any month will be in the respective flavors ordered by BFI, except for
reasonable and minor variations necessitated by production efficiencies.
2.4 Bariatrix agrees to produce not less than (i) [ * ] cases of 15-
serving canisters (six canisters per case; "cases") of the Mixes per calendar
month, and (ii) [ * ] single-serving packets ("packets") of the Mixes per
calendar month, each to the extent ordered by BFI under Section 2.2. Upon 30
days' prior written notice by BFI to Bariatrix, Bariatrix will increase its
minimum monthly production to [ * ] cases and [ * ] packets of the
Mixes. Bariatrix will use all commercially reasonable efforts to fill orders in
excess of the monthly minimum requirement set forth in this Section. The
quantities of the Mixes produced by Bariatrix in any month will be in the
respective flavors ordered by BFI, except for reasonable and minor variations
necessitated by production efficiencies. BFI will not be required to order any
minimum quantities of the Mixes. If BFI cancels any part of a purchase order for
Mixes in a given month, Bariatrix's monthly minimum production requirement for
such month shall be reduced by the number of units of the Mixes cancelled.
2.5 Production of the Products will be coordinated in accordance with the
following:
2.5.1 Prior to 11:00 a.m. Pacific Time on each Monday during the
term of this Agreement, Bariatrix will provide BFI with a written rolling
production schedule with
*Confidential portions omitted and filed separately with the Commission.
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respect to the production and delivery of Products ordered by BFI (each a
"Production Schedule"). Each Production Schedule will specify the dates and
quantities of production and delivery of the Products for the workweek that
begins on the following Monday ("Week 1"), the workweek that begins on the
second following Monday ("Week 2"), and the workweek that begins on the third
following Monday ("Week 3").
2.5.2 BFI will notify Bariatrix within one day of receipt whether
the Production Schedule is approved by BFI. If BFI notifies Bariatrix that the
Production Schedule is not reasonably acceptable to BFI, then, subject to
Section 2.5.3, Bariatrix will use its best efforts to revise the Production
Schedule to address BFI's concerns.
2.5.3 The parties agree that, once the quantities and time schedule
in a Production Schedule have been approved by BFI, then (except as permitted by
Section 19) they may only be changed to the extent set forth below. The
quantities and schedule set forth in the Production Schedule for Week 1 may be
not be changed from those set forth for such week in the prior Production
Schedule. The quantities and schedule contained in the Production Schedule for
Week 2 may be changed at the request of BFI no later than the Monday before the
commencement of Week 2 (i.e., the Monday of Week 1), to the extent deemed
commercially necessary by BFI, but BFI agrees to act in good faith to minimize
such changes. The quantities and schedule in the Production Schedule for Week 3
may be changed at the request of BFI no later than the Monday before the
commencement of Week 2, as BFI deems reasonably necessary. Bariatrix will
provide BFI with production quantity figures on the day following each
production run.
2.5.4 If Bariatrix fails to meet the quantities and time schedule
set forth in a Production Schedule, Section 4 hereof will apply. In addition,
BFI may cancel the remaining unproduced portion of the relevant purchase order,
if such delay continues for more than fifteen (15) days (on and after June 1,
1998, such 15-day period will be reduced to ten (10) days). If BFI cancels any
part of a purchase order for Bars in a given month, Bariatrix's monthly minimum
production requirement for such month shall be reduced by the number of Bars
cancelled.
2.5.5 Nothing in this Section 2.5 will be deemed to limit
Bariatrix's obligation to deliver the minimum monthly requirements for the
Products set forth in Section 2.3 or Section 2.4 above.
2.6 Both parties agree that the goal of this Section 2 is to ensure the
timely fulfillment of all BFI's customers' orders by meeting BFI's production
schedules and purchase orders for each flavor. Bariatrix agrees that it will
inform BFI immediately, or in any case within one business day, of any real or
anticipated delays. Bariatrix also agrees that, in the event of lost production
time for any reason except through fault of BFI, BFI will be given first
priority from among Bariatrix's other customers in making up production
schedules.
*Confidential portions omitted and filed separately with the Commission.
3
2.7 Bariatrix hereby agrees to maintain a production schedule sufficient
to allow BFI to maintain its finished goods inventory at minimum levels as
specified on Schedule 2 to this Agreement. BFI reserves the right to change the
required minimum finished goods inventory with forty-five (45) days prior
notice. Bariatrix will have until January 1, 1998, to achieve the minimum
inventory levels set forth on Schedule 2. In the event of an increase in an
inventory level requested by BFI as described above, Bariatrix will have 45 days
after BFI's written request to achieve such level. Bariatrix will update
information with respect to the inventories of the Products daily on its
computer system, and will provide twenty-four hour access to such information to
BFI by means of a computer modem connection.
2.8 Bariatrix will produce all Products at Bariatrix's facility in
Xxxxxxx, Xxxxxx, Xxxxxx. The foregoing notwithstanding, Bariatrix may produce
Products at another of its facilities if (i) the equipment and processes of such
alternate facility are of a quality at least as good as those of Bariatrix's
Lachine facility, (ii) production at such alternate facility would not result in
increased transit time for the Products to the delivery point set forth in
Section 5.1, and (iii) Bariatrix has received BFI's express written approval of
such alternate production facility, which approval will not be unreasonably
withheld.
2.9 Bariatrix covenants and agrees to maintain at all times sufficient
inventories of ingredients and supplies to meet its obligations hereunder.
3. PRICES; PAYMENT TERMS
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3.1 The initial price schedule for the Products is set forth on Schedule
3, and is exclusive of the costs of the Product Packaging (as defined in Section
7), which will be provided by BFI. The price for any Product includes
Bariatrix's cost of (i) inserting the Products into the Product Packaging, and
(ii) usual domestic packing of good quality so as to sustain (without damages)
normal domestic air and/or motor freight transportation to point of delivery.
The parties agree that such usual domestic packing includes, without limitation,
putting shrink wrap on individual boxes of the Products (or using an
alternatively approved carton closure system), placing such individual boxes in
corrugated cardboard containers with shipping labels attached, and putting such
containers on pallets, including adequate pallet wrap. Any other special
packing, boxing, crating, or cartage which is required by BFI will be for BFI's
account unless specifically agreed to in writing between the parties.
3.2 Bariatrix will have the right to adjust the prices to be paid for the
Products hereunder by providing to BFI a notice of such a price adjustment not
less than ninety (90) days prior to the proposed effective date of such price
adjustment. Any such price adjustment will be made only if required by the
aggregate effect of (i) actual changes in the cost of labor to Bariatrix; (ii)
actual changes in the U.S./Canadian currency exchange rate; and (iii) actual
changes in the cost of the ingredients utilized in the Products. Bariatrix will
provide BFI with documentary evidence of the changes in such factors together
with the notice of the price adjustment. Any proposed price increase will not
exceed, on a percentage basis, the increase in the weighted average (as set
forth below) of these three factors since
*Confidential portions omitted and filed separately with the Commission.
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the date of the last price adjustment. The three factors shall be weighted
based upon their respective percentage contributions to the cost of the relevant
Product over the immediately preceding twelve months. Should BFI reject the
proposed price adjustment, then Bariatrix may cease production of the item
concerned, or, if requested by BFI, reformulate the item with the approval of
BFI to meet the requirements of economic manufacturing. Bariatrix agrees that
it will not increase the prices set forth on Schedule 3 at any time prior to May
31, 1998, unless it has experienced unforeseen and material increases in the
three factors listed above. In the event of a significant reduction in any of
the three factors listed above, Bariatrix will promptly notify BFI of such
reduction, and the parties agree to implement an equitable price reduction as
negotiated in good faith by the parties.
3.3 Payment terms will be [ * ] after the date of Bariatrix's invoice.
Such invoice will be dated no earlier than the date of the delivery of the
ordered Products as specified in Section 5.1. If BFI makes payment on an invoice
within ten (10) days of its date, BFI may take a [ * ] discount from the payment
amount on such invoice, provided that no other invoices to BFI are then overdue.
Bariatrix will provide invoices to BFI by overnight delivery. Interest will
accrue and be payable at a rate of 1% per month on any amounts not timely paid.
If BFI is more than fifteen (15) days late in the payment of any invoice,
Bariatrix shall have the right to cease production of the Products, and any
resulting delay in production or delivery shall be deemed the responsibility of
BFI. The foregoing sentence shall not apply to any amount where the amount due
is disputed in good faith by BFI, and BFI has paid in full the undisputed
portion of the invoice.
3.4 Bariatrix represents and warrants that the prices set forth herein do
not and will not violate any federal, state, county or municipal law or
regulation relative to price discrimination, price-fixing, or price
stabilization. Without limiting the foregoing, Bariatrix will not communicate
with any other supplier or potential supplier of Products to BFI with respect to
the pricing of the Products.
4. FINANCIAL INCENTIVE FOR TIMELY PERFORMANCE
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4.1 The parties acknowledge that if Bariatrix is unable to supply ordered
Products in the expected time frame, BFI will be forced to incur additional
costs in the way of rush charges from other suppliers, additional shipping
charges, overtime, additional Product Packaging costs and other expenses. In
addition, BFI's relations with its customers and its ability to compete in its
markets may be damaged by any inability to supply Products. The parties further
acknowledge that it may be impossible, impracticable or burdensome for BFI to
quantify these expenses and potential damages.
4.2 Accordingly, as an additional incentive for Bariatrix to provide
ordered Products on a timely basis as required by Section 2, the parties hereby
agree that, if the number of Bars produced and delivered by Bariatrix in any
given week is less than 95% of the number of Bars specified in the latest BFI-
approved Production Schedule for such week, and if the production is not made up
within ten working days, then Bariatrix will rebate to
*Confidential portions omitted and filed separately with the Commission.
5
BFI an amount equal to [ * ] multiplied by the number of Bars constituting
such underage.
4.3 If the number of cases of Mixes produced and delivered by Bariatrix in
any given week is less than 95% of the number of cases of Mixes specified in the
latest BFI-approved Production Schedule for such week, then Bariatrix will
rebate to BFI an amount equal to [ * ] multiplied by the number of cases
constituting such underage. In addition, if the number of packets of Mixes
produced and delivered by Bariatrix in any given week is less than 95% of the
number of packets of Mixes specified in the latest BFI-approved Production
Schedule for such week, and if the production is not made up within ten working
days, then Bariatrix will rebate to BFI an amount equal to [ * ] multiplied
by the number of packets constituting such underage. Such rebate will be paid
by Bariatrix to BFI (or, at Bariatrix's option, credited against amounts owed to
Bariatrix by BFI for subsequent Product orders) within ten (10) days after the
end of such week.
5. DELIVERIES
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5.1 The Products will be shipped F.O.B. the warehouse maintained by
Bariatrix for BFI at 0000 Xxxxxxxxx Xxxx, Xxxxxxxxx, Xxxxxxx. The foregoing
notwithstanding, with respect to any Products (including Bars, Mixes and any
combination thereof) that may be shipped to a single destination west of
Denver, Colorado, designated by BFI, in a full truckload (meaning 20 to 24
pallets), the shipping costs for such Products will be paid by Bariatrix. Title
to the Products, and all risk of loss or damage, will transfer to BFI at the
F.O.B. point in Shelburne, Vermont.
5.2 The Products will be delivered free and clear of any and all liens,
security interests or encumbrances, except that Bariatrix will be entitled to
claim a lien and/or security interest on the Products to secure payment in full
of the amounts due in accordance with Section 3 hereof in addition to all other
rights and remedies to which it may otherwise be entitled. BFI hereby agrees to
execute promptly such financing statements and other documents as may be
necessary to perfect and protect such liens and security interest. The
foregoing notwithstanding, any security interest in the products will terminate
upon their sale by BFI in the ordinary course of BFI's business.
6. PRODUCT QUALITY; INSPECTION
---------------------------
6.1 Bariatrix represents and warrants that the Products will be free of
defects and fit for their intended purposes. Bariatrix further represents and
warrants that the Products will be manufactured to match the formulations,
nutritional profiles and names supplied by BFI in all material respects. During
the term of this Agreement, Bariatrix will have the right without prior
notification to BFI, to make minor processing adjustments to take advantage of
new technology deriving from Bariatrix's ongoing research program or to improve
manufacturing processes, providing that such changes do not modify the
ingredient listings, nutritional profiles, appearance, taste, texture, shelf
life, net weight, labeling requirements,
*Confidential portions omitted and filed separately with the Commission.
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or shape of the Products. In the event that such adjustments would result in
modification of any of these aspects, Bariatrix will notify BFI and refrain from
making the adjustments without BFI's prior written consent. Bariatrix further
represents that the Products will be represented by internal product codes
established, or to be established, for each Product.
6.2 Bariatrix represents and warrants that: all Products produced and
packaged for sale in the United States will be manufactured, stored and shipped
by Bariatrix in accordance with (i) all applicable standards of the U.S. Food
and Drug Administration, (ii) the requirements of the Fair Labor Standards Act
of 1938, as amended, and regulations and orders pursuant thereto issued by the
U.S. Department of Labor (to the extent applicable) and (iii) all other federal,
state, and local laws, rules and regulations; all Products produced and packaged
for sale in Canada will be manufactured, stored and shipped by Bariatrix in
accordance with (i) all applicable standards of the Canadian Department of
Agriculture, and (ii) all other Canadian national, provincial, and local laws,
rules and regulations; and all Products will be manufactured in accordance with
(i) prudent manufacturing practice, and (ii) the current Standard Operating
Procedures for Good Manufacturing Practice as maintained by Bariatrix.
Bariatrix further represents and warrants that all Products produced and
packaged for sale outside the United States or Canada will be manufactured to
meet any and all standards referenced on their labels or otherwise known to or
communicated to Bariatrix. BFI represents and warrants that the Products will
be maintained and stored by BFI in accordance with reasonable instructions
provided by Bariatrix and all applicable standards of the U.S. Food and Drug
Administration, and other federal, state, and local laws, rules and regulations
and prudent practice.
6.3 Upon delivery of the Products, BFI may inspect a representative sample
of the Products and reject the shipment if, by normal quality assurance
statistical methods, the shipment does not conform to the quality of previous
Products manufactured and sold by Bariatrix to BFI, provided that it notifies
Bariatrix of such rejection within three business days of the delivery of such
Products. Upon provision of such notice, such Products will become the property
of Bariatrix and will be promptly removed from BFI property at Bariatrix's sole
cost and expense. Bariatrix shall then promptly replace such nonconforming
Products with conforming Products at its sole cost and expense. Variations in
the organoleptic properties and/or analytical values attributable to
fluctuations in ingredient properties within specification ranges and outside
the control of Bariatrix will not be deemed sufficient ground for rejection of
the Products. However, nothing herein limits Bariatrix's warranties with
respect to the Products.
6.4 For each production run of any of the Products, Bariatrix will
promptly provide BFI with an accurate certificate of analysis which describes
(i) average weight, (ii) protein, carbohydrate and fat content, and (iii)
microbiological testing of the Product. Technical specification testing will be
based on randomized samples taken at the beginning, middle, and end of each
production run with the required numbers of Products per sample to give
sufficient statistical validity to guarantee that the composition of an order
meets specifications as defined within the norms applicable to the food industry
and with regard for
*Confidential portions omitted and filed separately with the Commission.
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limits of ingredient variation and analytical error. Bariatrix will also
provide BFI with four displays of the Products from each production run by
overnight delivery for BFI's own independent testing purposes.
6.5 During the term of this Agreement, BFI's representatives will have the
right to inspect the production facilities of Bariatrix (i) at any time, upon
twenty-four (24) hours prior notice to Bariatrix (unless Bariatrix provides BFI
with evidence reasonably satisfactory to BFI that Bariatrix is then producing
products that are subject to a confidentiality agreement between Bariatrix and a
third party), or (ii) at any time when Bariatrix is actually producing the
Products, without prior notice.
6.6 At all times during the term of this Agreement, Bariatrix will
maintain Kosher certification of its production facilities and processes.
7. PRODUCT PACKAGING
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BFI will provide the materials necessary for packaging the Products (the
"Product Packaging"). Prior to the printing of Product Packaging, BFI will
provide Bariatrix with samples of the Product Packaging to be used, including
the product labeling included therein, so that Bariatrix may evaluate the
material and design of the Product Packaging and review such labeling to make
sure the list of ingredients and the nutritional analysis thereon are accurate.
Bariatrix will notify BFI of its approval of the material and design of Product
Packaging, and of the accuracy of the labeling, within three (3) business days
of receipt, unless a longer period is approved by BFI in its sole discretion.
The parties acknowledge that Bariatrix has so reviewed BFI's existing Product
Packaging (including, without limitation, the labeling). Any change in the
Product Packaging is subject to Bariatrix's approval, provided, however, that
Bariatrix will not withhold such approval so long as the listing of ingredients
and nutritional analysis are accurate.
8. EXCLUSIVE PRODUCTION
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8.1 During the term of this Agreement, including any renewal or extension,
and for a period of one (1) year thereafter, Bariatrix will not produce or sell
in any sales venue, for any person or entity other than BFI, any nutritional
food or drink products using formulations similar to those of the Products.
Without limiting the foregoing, Bariatrix agrees not to produce or sell for any
person or entity other than BFI bars or mixes promoted or marketed as "40-30-30"
(meaning containing proportions of the three macronutrients as follows: 37% to
43% of calories from carbohydrate, 27% to 33% of calories from dietary fat and
27% to 33% of calories from protein) for sale in, or which are sold in, the
natural foods, sports, grocery, or convenience store markets or in any other
retail outlets worldwide. Production of 40-30-30 bars (i) under the trade name
BioZone for sale by Envion only in its existing network marketing program, (ii)
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for Xx. Xxxxx Xxxxx for sales direct to the consumer only by either mail order
----
or through a line of weight loss centers, but no other retail outlet, or (iii)
to be sold as meal replacements in Canadian medical centers, but not at retail,
which
*Confidential portions omitted and filed separately with the Commission.
8
meet the Canadian meal replacement requirements, does not violate this Section
so long as such bars do not utilize BFI's Proprietary Materials (as defined in
Section 9).
8.2 The provisions of Section 8.1 will not apply if BFI enters bankruptcy,
becomes insolvent, otherwise ceases to conduct their business, or if the
Agreement is terminated pursuant to Section 12.3 because of a breach by BFI.
8.3 Formulation, development and manufacture by Bariatrix of any future
Products for BFI, and any enhancements of existing Products, will be subject to
the same terms and conditions as set forth in Sections 8 and 9, unless the
parties agree to cover such future Products in a separate agreement.
8.4 Bariatrix will notify BFI promptly if any person or entity approaches
Bariatrix requesting that it produce any product which would use any trademark
of BFI (including, without limitation, "Balance(TM)," "Balance Bar(TM)," "The
Complete Nutritional Food(R)," "40-30-30 Naturally(TM)" or "40-30-30
Balance(TM)"), any variant of any such trademarks, or any name or xxxx similar
thereto.
9. PROPRIETARY MATERIALS; COORDINATION WITH NELLSON
------------------------------------------------
9.1 The parties acknowledge that the formulations and ingredient
specifications of the Products and all marketing plans, marketing and sales
data, financial information and customer lists and preferences of BFI
(collectively, "Proprietary Materials") constitute trade secrets of BFI. BFI
hereby grants Bariatrix a limited, non-exclusive license to use the Proprietary
Materials solely for the purposes set forth in this Agreement. Bariatrix agrees
not to use or disclose such Proprietary Materials (or any past formulations of
the Products), other than in accordance with this Agreement, without the written
consent of BFI except where required by law. Bariatrix will hold all such
Proprietary Materials in complete and strict confidence, and will maintain the
confidentiality of all such Proprietary Materials. In event of termination of
the Agreement, Bariatrix will return to BFI all Proprietary Materials and will
not keep any copies of such Proprietary Materials or any portions thereof,
except a single archival copy as may be required for any subsequent legal
inquiry or investigation.
9.2 Bariatrix acknowledges that BFI currently also contracts with Nellson
Candies, Inc. ("Nellson") to produce the Products and that BFI is free to seek
additional sources of supply without violating this Agreement. Bariatrix agrees
to cooperate with Nellson and other future suppliers, as reasonably requested by
BFI, in order to standardize the Products produced by Bariatrix, Nellson and
such future suppliers, if any, to comply with the formulations contained in the
Proprietary Materials. Such cooperation will include, without limitation, the
modification of Product formulations and ingredient specifications and the
reasonable coordination of production processes, in each case to the extent
requested by BFI, but will not require the disclosure of proprietary information
with respect to the productions processes of Bariatrix.
*Confidential portions omitted and filed separately with the Commission.
9
10. INSURANCE
---------
Bariatrix will maintain products liability insurance with an insurer
satisfactory to BFI with at least a Ten Million Dollar ($10,000,000) limit on
liability, which policy will reflect BFI as an additional insured. Copies of
such policies and certificates for such insurance will be provided to BFI within
thirty (30) days of the date of execution hereof. Such policy will provide not
less than thirty (30) days' prior notice to BFI in the event of its
cancellation. Bariatrix will maintain such insurance throughout the term of
this Agreement.
11. EXPORT
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At BFI's request, Bariatrix will use its reasonable efforts to cooperate
with BFI in connection with the satisfaction of all governmental and other
requirements with respect to the export of the Products including, without
limitation, applications for U.S. export licenses.
12. TERM
----
12.1 Unless earlier terminated pursuant to Section 12.2 or Section 12.3
below, this Agreement will continue until December 31, 2002. On December 31 of
each year during the term of this Agreement, commencing December 31, 1998, the
remaining term of this Agreement will be extended automatically for an
additional year, unless either party shall have given the other written notice
of non-renewal at least one hundred eighty (180) days prior to such December 31.
12.2 BFI may terminate this Agreement at any time, for any cause or
without cause, upon 360 days prior written notice to Bariatrix.
12.3 Either party may terminate this Agreement at any time upon the
occurrence of one or more of the following events with respect to the other
party (the "Defaulting Party"):
(a) failure to pay any amounts within sixty (60) days of when due;
(b) Subject to the provisions of Section 19, the breach of or default
under any material provision of this Agreement if the Defaulting Party has been
provided thirty (30) days' prior written notice of its breach or default and,
during such period, the Defaulting Party has failed to cure such breach or
default, or
(c) the bankruptcy or insolvency of the Defaulting Party.
Such termination will not abridge or limit the right of either party to seek
damages or other redress as a result of such breach.
*Confidential portions omitted and filed separately with the Commission.
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12.4 The provisions of Sections 6.1, 6.2, 8 (subject to Section 8.2), 9,
10, 13 and 17 will survive any termination of this Agreement.
13. INDEMNIFICATION
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13.1 Each of the parties (the party indemnifying the other is hereinafter
referred to as the "Indemnifying Party") will indemnify, defend and hold the
other party (the "Indemnified Party") and its directors, officers, employees,
agents, attorneys, insurers, shareholders and affiliates (its "Related Persons")
harmless from and against any claims, damages, liabilities, costs and expenses,
including the reasonable fees and expenses of counsel (collectively, "Losses"),
resulting from any breach or violation of any representation, warranty, covenant
or agreement of such party set forth in this Agreement.
13.2 BFI will indemnify and hold Bariatrix and its Related Persons
harmless from and against any Losses arising out of or in connection with the
Proprietary Materials and the use and distribution of Product Packaging,
including, without limitation, any claim based on an alleged infringement of the
patent, trademark, or other intellectual property rights of another party
arising out of such items, except to the extent that (i) such Losses are
attributable to any negligence or misconduct of Bariatrix, (ii) such Losses
relate to the methods of production of the Products employed by Bariatrix; or
(iii) such Losses relate to the accuracy of the list of ingredients or
nutritional analysis set forth on the Product Packaging.
13.3 Bariatrix will indemnify and hold BFI and its Related Persons
harmless from and against any Losses arising out of or in connection with (i)
the manufacture, production or shipment of the Products, including, without
limitation, any product liability claims with respect to the Products, or (ii)
the accuracy of the list of ingredients and nutritional analysis set forth on
the Product Packaging.
13.4 The Indemnifying Party will have the right to defend any third party
claim, action or proceeding wherein the Indemnified Party and/or its Related
Persons are entitled to indemnification under the provisions of this Section;
provided, however, that the Indemnifying Party must conduct the defense of the
third party claim actively and diligently thereafter to preserve its rights in
this regard. The Indemnified Party and any Related Person may retain separate
co-counsel at its or their sole expense and participate in the defense of the
third party claim. Neither party will settle any such claim, action, or
proceeding without the other party's consent or approval, unless the proposed
settlement involves only the payment of money damages by the settling party and
does not impose an injunction or other equitable relief on the other party or
such Related Persons. The Indemnified Party will fully cooperate, at the
expense of the Indemnifying Party, with the Indemnifying Party in the defense or
settlement of any claim, action or proceeding subject to the provisions of this
Section.
14. ASSIGNMENT
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*Confidential portions omitted and filed separately with the Commission.
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Bariatrix will not transfer or assign its rights and obligations hereunder
without the prior written consent of BFI, other than as part of a Transaction
(as defined in Section 15).
15. CHANGE IN CONTROL OF BARIATRIX
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15.1 Bariatrix agrees not to merge, transfer a controlling interest in
its capital stock, or transfer all or substantially all of its assets (other
than in the ordinary course of its business), and _____________________ (the
"Bariatrix Shareholders") agree not to transfer all or any substantial portion
of the capital stock of Bariatrix, without complying with Section 15.2. Any of
the above transactions is referred to herein as a "Transaction."
15.2 Prior to a transfer referenced in Section 15.1, Bariatrix or the
Bariatrix Shareholders, as appropriate, must first give written notice of such
intent to BFI (a "Transfer Notice"). The Transfer Notice shall be accompanied
by a copy of any proposed transfer agreement, and must name the proposed
transferee, describe its business background, and specify the terms of the
transfer, including price and payment terms (collectively the "Offered Terms").
For thirty (30) days following delivery of the Transfer Notice, BFI shall have
the option to enter into a binding agreement to purchase the assets or capital
stock of Bariatrix on the Offered Terms as set forth in the Transfer Notice. If
BFI does not exercise this option within the specified thirty-day period, then
the party transmitting the Transfer Notice may complete the transaction
described therein on the Offered Terms (or terms more favorable to the seller
than the Offered Terms), provided that such transaction is consummated within
sixty (60) days after the end of such thirty-day period. The right of first
refusal contained herein shall thereupon terminate. If the transaction is not
contemplated within this sixty-day period, then the transferring party must
again comply with the rights of first refusal contained in this Section prior to
any such transfer.
15.3 This Agreement will not be terminated, limited or modified in any
way by a Transaction. Bariatrix and the Bariatrix Shareholders will notify any
other party to a Transaction of the terms of this Section 15 prior to entering
into the Transaction. In addition, if requested by BFI, Bariatrix will cause
such other party to the Transaction to sign a written agreement assuming all of
the responsibilities of Bariatrix hereunder.
16. GOVERNING LAW
-------------
This Agreement will be governed by the Uniform Commercial Code and other
applicable laws of the State of California.
*Confidential portions omitted and filed separately with the Commission.
12
17. DISPUTE RESOLUTION
------------------
In the event of a dispute arising out of or relating to this Agreement that
the parties cannot resolve between themselves without assistance, the Parties
agree to attempt to resolve such dispute through third-party mediation. Any
such dispute that is not resolved within thirty (30) days after a request for
mediation by either of the parties, will be settled by arbitration to be held in
Santa Barbara, California, in accordance with the then-applicable rules of the
American Arbitration Association or any successor thereto. If the parties shall
not have agreed on a mutually satisfactory arbitrator within ten (10) days of
the request of any party for arbitration hereunder, the President of the
American Arbitration Association will forthwith appoint an arbitrator. The
arbitrator shall be a person experienced in the specialty foods industry with no
prior affiliation with either party. The arbitrator may grant injunctions or
other relief in such dispute, but may not award punitive or exemplary damages.
The decision of the arbitrator will be final, conclusive and binding on the
parties to the arbitration. Judgment may be entered on the arbitrator's decision
in any court having jurisdiction, and the parties hereby irrevocably consent to
the jurisdiction of the United States District Court for the Central District of
California, or if that court has no jurisdiction, to the California Superior
Court in and for the County of Santa Xxxxxxx for this purpose. The arbitrator
will award to the prevailing party on each material issue that party's
reasonable attorney's fees and cost. The term "prevailing party" shall mean
that party which shall have substantially prevailed on a material issue in
dispute. As to distinct, severable issues in dispute, the arbitrator may decide
which party is the prevailing party. Accordingly, the arbitrator will have the
discretion to award attorney's fees to both parties, in amounts to be determined
by the arbitrator, if the arbitrator shall determine that as to separate and
distinct material issues having a bearing on an entitlement to relief each of
the parties shall have been a prevailing party. Application for cost and
expenses shall be substantiated with documentary verification. The actual cost
of the arbitration itself will be borne by the losing party or will be allocated
between the parties in such proportions as the arbitrator decides if there are
distinct, severable issues in dispute and the arbitrator determines that each
party has to some extent, been a losing party.
18. FINANCIAL INFORMATION
---------------------
Each party agrees to provide the other party with the following financial
information: (i) such party's audited annual financial statements, to be
provided within 90 days after the close of each fiscal year; and (ii) such
party's unaudited
*Confidential portions omitted and filed separately with the Commission.
13
quarterly balance sheet, to be provided within 45 days after the close of each
fiscal quarter.
19. FORCE MAJEURE
-------------
In the event that either party shall be delayed, hindered in or prevented
from the performance of any act required hereunder, by reason of war, riots,
insurrection, strikes, labor troubles, failure of power, or the act, failure to
act or default of the other party, or any other reason beyond such party's
reasonable control, then performance of such act will be excused for the period
of the delay and the period for the performance of any such act will be extended
for a period equivalent to the period of such delay.
20. INDEPENDENT CONTRACTOR STATUS
-----------------------------
This Agreement does not in any way create the relationship of joint
venture, partnership, or principal and agent between Bariatrix and BFI. The
parties have entered into this Agreement solely as independent contractors.
Neither party will have any right or authority to assume or otherwise create any
obligation or responsibility, express or implied, on behalf of or in the name of
the other party, or to bind the other party in any manner or thing whatsoever,
without the other party's prior written consent.
21. NOTICES
-------
Any notice or other communication hereunder must be given in writing and
either (a) delivered in person, (b) sent by recognized messenger or next-day
courier service, (c) transmitted by telex, telefax or telecommunications
mechanism, provided that any notice so given is also mailed as provided in
clause (d), or (d) mailed by first class mail, postage prepaid, as follows:
If to BFI: Bio Engineered Foods, Inc.
0000 Xxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attention:
Telecopy number: 000-000-0000
With a copy to: Xxxxxx X. Xxxxxxx, Esq.
Seed, Xxxxxxx & Xxxx
X.X. Xxx 0000
Xxxxx Xxxxxxx, XX 00000
Telecopy number: 805-962-1404
If to Bariatrix: Bariatrix International, Inc.
00 Xxxxx Xxxx
Xxxxx Xxxxxxxxxx, XX 00000
Attention: Xx. Xxx Xxxxx
*Confidential portions omitted and filed separately with the Commission.
14
Telecopy number: 000-000-0000
With a copy to: Xxxxx X. Xxxx, Esq.
Gravel and Xxxx
X.X. Xxx 000
Xxxxxxxxxx, XX 00000-0000
Telecopy number: 000-000-0000
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 21 and an appropriate answer back is received, (ii) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when actually delivered at such address.
22. HEADINGS
--------
Any headings used herein are for convenience and reference only and will
not be deemed to have any substantive effect.
23. ENTIRE AGREEMENT; CONSTRUCTION
------------------------------
23.1 This Agreement and the instruments referred to herein embody the
entire agreement and understanding between the parties relating to the subject
matter hereof and may not be amended, waived, or discharged except by an
instrument in writing executed by the party against whom enforcement of such
amendment, waiver or discharge is sought. All schedules attached are by this
reference incorporated herein. This Agreement supersedes the Prior Agreement in
all respects.
23.2 Unless otherwise agreed by both parties in writing, this
Agreement applies to all purchase orders, sales acknowledgments and other
documents of purchase which BFI or Bariatrix may deliver with respect to the
Products after the date hereof. The terms and conditions of this Agreement will
apply to any such document, whether or not this Agreement or its terms and
conditions are expressly referenced in such document.
23.3 If any claim is made by a party relating to any conflict,
omission or ambiguity in the provisions of this Agreement, no presumption or
burden of proof or persuasion will be implied because this Agreement was
prepared by or at the request of any party or its counsel, notwithstanding any
statute or rule of law to the contrary.
*Confidential portions omitted and filed separately with the Commission.
15
23.4 Whenever in this Agreement a person is permitted or required to make
a decision or determination (x) in its "discretion" or "sole discretion" or
under a grant of similar authority or latitude, the person will be entitled to
consider any interests and factors as it desires, including its own interests;
(y) in it "good faith," in a "commercially reasonable" manner, "reasonably" or
under another express standard, the person will act under that express standard
and will not be subject to any other or different standards imposed by this
Agreement or otherwise; or (z) if no standard is expressed, the person will
apply relevant provisions of this Agreement in making the decision or
determination.
24. NO WAIVER
---------
The failure of either party to enforce at any time any of the provisions
hereof (including, without limitation, any inspection rights) will not be
construed to be a waiver of such provision, of any other provision, or of the
right of such party thereafter to enforce any such provision or other provision.
25. SECURITIES FILINGS
------------------
The parties agree that BFI will include a copy of this Agreement as an
exhibit to one or more filings with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended. BFI will also describe the terms of this Agreement in
one or more such filings. Any such filings will be available to the general
public. Upon request by Bariatrix, BFI will use its reasonable efforts to
obtain confidential treatment from the SEC for key provisions of the Agreement
to the extent feasible, as determined by BFI in consultation with its securities
counsel.
(SIGNATURES ON FOLLOWING PAGE)
*Confidential portions omitted and filed separately with the Commission.
16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
this Agreement to be executed as of the date first set forth above.
BARIATRIX INTERNATIONAL, INC. BIO-ENGINEERED FOODS, INC
By:___________________________ By:___________________________
Name:_________________________ Name:_________________________
Title:________________________ Title:________________________
By:___________________________ By:___________________________
Name:_________________________ Name:_________________________
Title:________________________ Title:________________________
BARIATRIX SHAREHOLDERS
Accepted and agreed as to Section 15:
_____________________________ Share ownership:______________
Name:
_____________________________ Share ownership:______________
Name:
_____________________________ Share ownership:______________
Name:
*Confidential portions omitted and filed separately with the Commission.
17
SCHEDULE 1
BARS CURRENTLY PRODUCED
[ * ]
*Confidential portions omitted and filed separately with the Commission.
18
SCHEDULE 2
[intentially omitted in original document]
19
SCHEDULE 3
PRICES
[ * ]
*Confidential portions omitted and filed separately with the Commission.
20
