Food Production Agreement - Flying Food Group LLC and Briazz Inc.
FOOD PRODUCTION AGREEMENT
THIS FOOD PRODUCTION AGREEMENT (this "Agreement") is made and entered
into as of December 1, 2002, by and between FLYING FOOD GROUP, L.L.C. a Delaware
limited liability company ("FFG") and BRIAZZ, INC., a Washington corporation
("BRIAZZ").
RECITALS:
WHEREAS, FFG is a manufacturer and supplier of various quality food
products; and
WHEREAS, BRIAZZ operates retail cafes, catering and wholesale food
sales under the BRIAZZ name in the Chicago, Seattle, Los Angeles and San
Francisco market areas; and
WHEREAS, FFG and BRIAZZ desire to enter into this Agreement for FFG to
act as the exclusive manufacturer and supplier of various food products to
BRIAZZ on the terms and conditions specified below.
NOW THEREFORE, in consideration of the above premises and mutual
covenants contained herein, the parties hereto agree as follows:
AGREEMENTS
1. Services.
(a) Manufacture and Packaging of Products. FFG shall,
either directly or by outsourcing to a third-party under the
supervision of FFG, manufacture and package for BRIAZZ all food
products sold by BRIAZZ or any of its affiliates during the term hereof
in all market areas in which BRIAZZ operates (collectively, the
"Products"), in accordance with the manufacturing procedures, the
product specifications, packaging instructions, and quality control
procedures set forth in this Agreement. The current BRIAZZ menu of
Products consists of approximately one hundred (100) salad and sandwich
SKU's of which approximately twenty percent (20%) are USDA items as
currently defined. Upon prior reasonable notice to FFG, BRIAZZ may
change items on the menu provided, however, that the total quantity of
items and proportion of the items which are USDA items must remain
approximately the same. For the term of this Agreement, FFG shall have
the right of first refusal to manufacture and package food products for
BRIAZZ in any new markets that BRIAZZ may enter.
(b) Third-Party Distribution. FFG will from time to time
upon request of BRIAZZ, provide BRIAZZ with purchasing, warehousing and
storage of food products, packaging and other services as mutually
agreed to between the parties.
2. Transfer of Production to FFG Facilities and Startup.
(a) Transfer of Production. BRIAZZ agrees to transfer
production of the Products in the following market areas to FFG, and
FFG agrees to manufacture and package the Products in such market
areas, by the following dates, subject to FFG's kitchen facility for
such market becoming USDA certified:
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Chicago, Illinois -- December 1, 2002
Los Angeles, California -- December 8, 2002
Seattle, Washington -- March 2, 2003
San Francisco, California -- March 2, 2003
The parties agree that FFG has obtained USDA certifications
for each of the Chicago and Los Angeles market areas. If FFG is unable to take
responsibility for food production such that BRIAZZ is unable to close its
commissaries in Seattle and/or San Francisco by March 1, 2003, FFG shall pay to
BRIAZZ the actual costs incurred by BRIAZZ of foregoing a potential sublet
opportunity, not to exceed $50,000 for each market.
(b) BRIAZZ Kitchen Equipment. At FFG'srequest, BRIAZZ
will transfer to FFG any BRIAZZ-owned kitchen equipment requested by
FFG free-of-charge for the term of this Agreement. If this Agreement is
terminated within one (1) year following commencement of production of
Products, FFG will return the equipment to BRIAZZ; otherwise the
parties agree that any such equipment used beyond one year will have
nominal value and can be disposed of as FFG determines in its sole
discretion.
3. Term. Unless sooner terminated under the terms hereof, this
Agreement shall remain in full force and effect for a period of ten (10) years
from the date hereof. Thereafter, it shall automatically be renewed for
successive one year terms unless either party shall deliver written notice to
the other of termination not less than three hundred sixty-five (365) days prior
to the end of the initial term or renewal term in question.
4. Purchase Orders and Delivery. BRIAZZ will transmit to FFG
daily orders for Products and services to be provided by FFG. BRIAZZ and FFG
will mutually agree on required ordering and delivery times. All orders shall be
confirmed or rejected by FFG within one (1) hour of receipt of such order. FFG
will use its best efforts to confirm and provide all Products and services
ordered by BRIAZZ and will advise the specific reasons for any rejected order.
All orders shall be shipped and provided F.O.B. FFG docks of the FFG facility in
the market area in which the order is placed.
5. Cost and Pricing.
(a) Food Production--Phase I (Transition Period). For the
first week of production, Briazz will reimburse FFG for all operating
costs (including moving, equipment relocation and set up costs). For
the next one hundred twenty (120) days for Chicago and Los Angeles, and
for the next sixty (60) days for Seattle and San Francisco (such
periods referred herein to as the "Transition Period" for such
applicable FFG facility), FFG will charge BRIAZZ for Products produced
at such FFG facility based on a formula consisting of: (i) Direct
Costs; plus (ii) a fee of ten percent (10%) of the Direct Costs. The
term "Direct Costs" shall mean all costs incurred by FFG in producing
the Products; provided, however, Direct Costs shall not exceed BRIAZZ's
most recent comparable costs. BRIAZZ's most recent comparable costs
shall be the CK operating costs (before occupancy) for BRIAZZ's two (2)
reporting periods prior to transition to the applicable FFG facility,
as reflected in BRIAZZ's financial statements for those
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periods or subject to mutual agreement by the parties. Direct Costs
shall include, but not be limited to:
(i) food, product and packaging costs,
including, allocation for COGS variance;
(ii) direct labor costs (including benefits and
taxes) associated with food production;
(iii) incremental direct labor costs for related
kitchen functions (e.g., clerical,
storeroom, , storage and warehousing);
(iv) incremental management salary costs
(including benefits and taxes) for one
manager (additional management may be added
subject to mutual agreeement) necessary for
production of BRIAZZ's products and
services;
(v) direct operating costs (e.g., uniforms) to
be agreed upon by FFG and BRIAZZ; and
(vi) incremental USDA costs.
(b) Food Production--Phase II (Post-Transition Period).
FFG will complete costing and proposed pricing for all Products and
services to be provided to BRIAZZ from a particular FFG Facility prior
to the expiration of the Transition Period for such facility. FFG and
BRIAZZ will agree on prices to be charged for all Products and services
within thirty (30) days after FFG submits such pricing to BRIAZZ, and
these prices will replace the cost-plus arrangement in Section 5(a)
above. The four components of pricing include:
(i) food and packaging costs (adjusted for
Shared Savings);
(ii) direct labor costs for food production and
incremental labor costs for related kitchen
functions;
(iii) incremental operating costs (e.g., uniforms,
utilities, USDA costs); and
(iv) profit.
BRIAZZ has generated ingredient product costs ("Standard Costs") for
all of its items. If FFG is able to produce items in accordance with
this Agreement at a price lower than the Standard Costs, savings will
be shared equally between BRIAZZ and FFG (the "Shared Savings"). BRIAZZ
and FFG agree to meet at least biannually to review costs and identify
Shared Savings.
(c) Third-Party Distribution Services. For any
third-party distribution service that BRIAZZ requests FFG to perform,
FFG will change BRIAZZ the actual costs incurred to render such service
plus a handling charge of five percent (5%) of the cost of the products
handled.
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6. Invoicing and Payment. FFG shall issue a weekly statement
dated the last day of each weekly period summarizing all daily orders for the
week setting forth the name, quantity and cost of each item delivered and
services provided and the payment amount due. BRIAZZ shall make payment for each
weekly invoice statement within seven (7) days of invoice statement date with
respect to the Los Angeles market and within fourteen (14) days of invoice
statement date with respect to all other markets.
7. Quality Assurance.
(a) FFG warrants that:
(i) that the Products, including food articles,
food ingredients, food packaging, and food
labeling relating to or comprising the
Products or any part thereof delivered, sold
or transferred to BRIAZZ hereunder shall be
in full compliance with all applicable
federal statutes, rules and regulations,
including, without limitation, with the
Federal Food Drug and Cosmetic Act ("FDCA"),
the rules and regulations promulgated from
time to time by the USDA, the Fair Packaging
and Labeling Act (FP& L Act), the
Nutritional Labeling & Education Act (NLEA),
all current and future amendments thereto,
and all regulations and rules implemented
thereunder now and in the future;
(ii) that the Products shall be manufactured,
stored and delivered, and the condiments
shall be stored and delivered, in accordance
with appropriate "Good Manufacturing
Practices" or similar practices that may be
promulgated under the aforementioned acts,
amendments, regulations, rules, as
applicable, and in accordance with all state
laws and local health and sanitary
ordinances or regulations;
(iii) that the Products shall be manufactured,
stored, and delivered, and the condiments
shall be stored and delivered, in accordance
with a Hazard Analysis of Critical Control
Point ("HACCP") program (as defined below).
As used in this Agreement, a HACCP program means a program to identify
critical control points in the production and delivery process to prevent
physical, microbiological and chemical adulteration of the Products. The
critical control points in the HACCP program must have established tolerances
and must be measured at fixed intervals. The HACCP program requires supplier to
establish and maintain reasonable written records to confirm supplier's
compliance with the program, including written instructions to supplier's agents
and employees for properly handling Products which are found to be outside the
critical control limits. These warranties shall be in addition to all other
warranties, express, implied or statutory and in addition to all obligations
contained in this Agreement. Payment for, inspection of, or receipt of the
Products shall not constitute a waiver of any breach or warranty.
(b) BRIAZZ's food manager or other authorized
representative shall have the right, upon reasonable prior notice to
FFG, to perform quality control inspections from
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time to time during FFG's regular business hours to determine if FFG is
complying with the standards and procedures set forth in Section 7(a)
above. BRIAZZ agrees that such inspections shall not unreasonably
interfere with the operations of FFG. In the event that a Product(s)
does not conform to the specifications or BRIAZZ's Food Safety and
Quality Assurance Standards described in Section 7(a) above, BRIAZZ
shall be permitted to reject all nonconforming shipments and services
and shall be entitled to, at BRIAZZ's option, replacement Product(s) or
reimbursements for the actual costs (including shipping and delivery
costs) of the Product(s).
(c) OTHER THAN THAT SET FORTH IN SECTION 7(a) above, FFG
MAKES NO WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED, EXCEPT FOR
THE IMPLIED WARRANTY OF MERCHANTABILITY. Except as provided in Section
10 of this Agreement, the liability of FFG for any products failing to
meet the warranties set forth in Section 7(a) above shall be limited to
the obligation to replace or reimburse in accordance with Section 7(b)
above.
8. Trademarks and Designs. Except as set forth below, FFG shall
not, except with respect to Products manufactured for BRIAZZ pursuant to this
Agreement, use any Trademarks (as defined below) of BRIAZZ. FFG acknowledges
BRIAZZ's ownership of the Trademarks and agrees that, except as set forth below:
(a) the Trademarks are the property of BRIAZZ or its
affiliates;
(b) nothing in this Agreement shall be construed as
granting FFG any interest in the Trademarks; and
(c) upon termination of this Agreement for any reason
whatsoever, FFG shall immediately discontinue all use of the
Trademarks.
For purposes of this Agreement, the term "Trademarks" shall mean all trademarks,
trade names, logos and/or other proprietary marks and distinctive markings
and/or designs owned by BRIAZZ or any affiliate of BRIAZZ, including without
limitation any of such items as will appear on the packaging of the Products.
Nothing contained herein shall prohibit FFG from using the same formulations,
recipes and/or ingredients for products comprising the Products for sale to the
food service industry, provided that FFG does not use the Trademarks in
connection with such products.
9. Representations and Warranties.
(a) BRIAZZ. BRIAZZ hereby represents and warrants to FFG
that: (i) BRIAZZ has the necessary power and authority to enter into
this Agreement and to perform the obligations to be performed by it
hereunder; (ii) this Agreement is valid and binding upon BRIAZZ and
enforceable in accordance with its terms; and (iii) the execution and
delivery of this Agreement by BRIAZZ does not and its performance will
not violate any provisions or result in a default under any agreement,
instrument, indenture, judgment, order, award or decree to which BRIAZZ
is a party or is bound.
(b) FFG. FFG hereby represents and warrants to BRIAZZ
that: (i) FFG has the necessary power and authority to enter into this
Agreement and to perform the obligations to be performed by it
hereunder; (ii) this Agreement is valid and binding
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upon FFG and enforceable in accordance with its terms; and (iii) the
execution and delivery of this Agreement by FFG does not and its
performance will not violate any provisions or result in a default
under any agreement, instrument, indenture, judgment, order, award or
decree to which FFG is a party or is bound.
10. Indemnification.
(a) FFG shall protect, defend, indemnify and hold
harmless BRIAZZ and its directors, officers, employees and agents, from
and against any and all actions, claims, liabilities, loss, damage,
cost or expense, including reasonable attorneys' fees, arising out of
any claims of personal injuries or death to any person or damage to any
property caused by contact with, use and/or consumption of any Product
that does not meet the warranties required under this Agreement unless
such injury, illness and/or death is caused by the negligent acts or
omissions of BRIAZZ, its directors, officers, employees and agents. In
the event of any third party claim arising under this indemnity, if
tendered to FFG for defense, FFG shall have the right to conduct and
control the defense in respect thereto, but BRIAZZ may have counsel
present at its own expense, provided however, BRIAZZ may elect not to
tender any third party claim for defense by FFG and may instead elect
to defend or settle such claim. In such instance, BRIAZZ's right to
indemnification shall be limited to proceeds, if any, received by FFG
with respect to its Insurance (hereinafter defined) and covering such
claim; FFG makes no warranty as to the collectibility of claims for
Insurance on claims defended or settled by BRIAZZ, but does agree to
cooperate with BRIAZZ in submitting claims for Insurance. BRIAZZ shall
cooperate with FFG in defense conducted by FFG as requested by FFG and
at FFG's expense. Prompt notice of any such claim asserted against
BRIAZZ shall be given by BRIAZZ to FFG. BRIAZZ shall not be entitled to
any actual or consequential damages resulting from: (i) lost sales
caused by any adverse publicity relating to any such personal injury or
property claim; or (ii) lost profits as a result of BRIAZZ's action or
inaction under this Agreement, except to the extent of Insurance
proceeds collected by FFG (or BRIAZZ as additional insured).
(b) BRIAZZ shall protect, defend, indemnify and hold
harmless FFG, its directors, officers, employees and agents from and
against any and all actions, liability, loss, damage, cost or expense,
including reasonable attorneys' fees, arising out of: (i) any claim
that Products or the formulations thereof infringe any patents or such
other rights of any third party; or (ii) any claim that the labels or
packaging of the Products or Trademarks infringe any copyright or
trademark of any third party; or (iii) any claim of personal injury or
death to any person or damage to any property caused by any Product
that meets the warranties required under this Agreement; or (iv) any
act of negligence by BRIAZZ, which results in loss to FFG, where FFG
was not also negligent. In the event of any third party claim arising
under this indemnity, if tendered to BRIAZZ for defense, BRIAZZ shall
have the right to conduct and control the defense in respect thereto,
but FFG may have counsel present at its own expense, provided however,
FFG may elect not to tender any third party claim to BRIAZZ for defense
and may instead elect to defend or settle such claim. In such instance,
FFG's right to receive indemnification shall be limited to proceeds, if
any, received by BRIAZZ with respect to any insurance maintained by it
and covering such claim; BRIAZZ makes no warranty as to the
collectibility of claims for insurance or claims defended or settled by
FFG, but does agree to cooperate with FFG in submitting such claims for
insurance. FFG shall cooperate with
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BRIAZZ in such defense as requested by BRIAZZ and at BRIAZZ expense.
Prompt notice of any such claim asserted against FFG shall be given by
FFG to BRIAZZ. FFG shall not be entitled to any consequential damages
resulting from (1) lost sales caused by any adverse publicity relating
to any of the foregoing claims; or (2) lost profits as a result of
FFG's action or inaction under this Agreement, except to the extent of
any insurance proceeds collected by BRIAZZ.
(c) The remedies set forth in this Section 10 and set
forth in Section 7(b) are the sole and exclusive remedies available to
FFG and BRIAZZ in respect of any loss, liability, damage, cost or
expense for any breach of their respective representations, warranties
and covenants under this Agreement.
11. Insurance. During the term of this Agreement, FFG will
maintain commercial general liability insurance (including product liability and
completed operations coverage) in an amount of not less than $1,000,000 minimum
coverage per occurrence, with a general aggregate of not less than $5,000,000 of
umbrella coverage ($2,000,000 of umbrella coverage with respect to Los Angeles
market only) for all occurrences (the "Insurance"), and will name BRIAZZ as an
additional insured. FFG will promptly provide certificates of insurance
evidencing the aforesaid coverage upon request of BRIAZZ from time to time.
12. Termination. (a) A party may terminate this Agreement in toto
by written notice to the other under the following circumstances:
(i) By the solvent party, if the other party
(i.e., the "insolvent" party) permanently
discontinues business or is adjudicated a
bankrupt or files a voluntary petition in
bankruptcy or reorganization; or
(ii) By FFG upon 180 days notice to Briazz,
should BRIAZZ not obtain the approval of a
majority of its shareholders on or before
April 30, 2003, of the issuance of the
required number of shares of its common
stock in connection with the conversion of
shares of BRIAZZ's Series D Preferred Stock
in accordance with BRIAZZ's Articles of
Amendment to be filed with the Washington
Secretary of State in accordance with that
certain Purchase Agreement between BRIAZZ
and Briazz Venture, L.L.C. dated March 5,
2003.
(b) A party may terminate this Agreement with respect to
a particular market area by written notice to the other under the following
circumstances:
(i) By the non-defaulting party if the other
party (i.e. the "defaulting party") shall
make or suffer to exist any breach or
default on its part under the provisions of
this Agreement with respect to a particular
market area, and if such breach is capable
of a cure, such breach or default shall
continue unremedied for thirty (30) days
after written notice thereof given by the
other party hereto; or
(ii) By BRIAZZ with respect a particular market
area if FFG, within sixty (60) days
following occurrence of a Force Majeure
Event (as defined in Section 15 below), is
not able to resume production of
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the Products, either directly or by
outsourcing to a third party, subject to
FFG's supervision until normal operation can
be resumed by FFG.
13. Rights Following Termination. From and after the effective
date of any termination of this Agreement, neither of the parties hereto shall
have any further rights, privileges or obligations hereunder, except that:
(a) Such termination shall not relieve the parties of any
liability incurred prior to the effective date of such termination; and
(b) Such termination shall not affect the continued
operation or enforcement of the obligations set forth in Section 10,
which shall survive the termination or expiration of this Agreement.
(c) BRIAZZ shall purchase from FFG any remaining
packaging materials or ingredients unique to the Products (all at FFG's
cost on "FIFO" basis) and finished Products at the then current pricing
on or before the termination date.
14. Relationship of Parties. The relationship of FFG to BRIAZZ
shall be that of an independent contractor, and this Agreement shall in no way
constitute or give rise to a partnership, agency or joint venture between the
parties. FFG shall have no authority to incur any liabilities or obligations
whatsoever on behalf of BRIAZZ except as expressly stated herein. FFG shall not
acquire any rights whatsoever to the confidential material or to any patents,
Trademarks or trade names of BRIAZZ except as expressly stated hereunder. BRIAZZ
has no right to exercise any control over any of FFG's employees, who shall be
entirely under the control and direction of FFG. The operation of the designated
manufacturing plants, and all machinery and other equipment employed by FFG in
conjunction with the performance of its obligations hereunder, shall be subject
to the sole control and responsibility of FFG.
15. Force Majeure. Subject to Section 12(b) above, neither party
shall be liable for any delay in delivery or any other failure to perform its
obligations hereunder, if such delay or failure is caused by any of the
following (each a "Force Majeure Event"): acts of the other party; acts of God;
acts of third parties contracting with the other party for other equipment or
materials; war (declared or undeclared); strikes, riots, civil disturbances or
unrest; destruction of plant or facilities; or other causes similar of
dissimilar beyond the reasonable control of such party.
16. Miscellaneous Terms.
(a) Governing Law. This Agreement is made in, and shall
be governed by, and enforced in accordance with the laws of the State
of Illinois without reference to its conflict of laws provisions.
(b) Assignment; Binding Agreement. This Agreement may not
be assigned by any party hereto without the prior written consent of
the other party, provided however, in the event of the sale of all or
substantially all of the assets of the party or a merger in which such
party is not the surviving entity, this Agreement may be assigned to
the purchaser of such assets or the surviving entity to such merger
provided that: (i) the assignee enters into an assignment and
assumption on terms reasonably satisfactory to the
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non-assigning party, whereby the assignee agrees to assume all
obligations hereunder of the assignor; and (ii) the assignee has a net
worth greater than or equal to that of the assignor as of the date
immediately prior to the assignment, or the assignor and its successors
in interest remain liable for the assignee's ongoing obligations
hereunder. This Agreement shall be binding upon and inure to the
benefit of the respective successors and permitted assigns of the
parties. Nothing in this Agreement, expressed or implied, is intended
or shall be construed to confer upon any person other than the parties
and successors and permitted assigns any right, remedy or claim under
or by reason of this Agreement.
(c) Entire Agreement. This Agreement, the exhibits and
the other documents delivered hereto constitute the entire
understanding of the parties with respect to the subject matter hereof
and may be modified only by an agreement in writing signed by the other
party.
(d) Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such a manner as to be effective
and valid under applicable law. If any provision of this Agreement
shall be unenforceable or invalid under such law, such provision shall
be ineffective only to the extent and for the duration of such
enforceability or invalidity, and the remaining substance of such
provision and all other remaining provisions of this Agreement shall
continue to be binding and in full force and effect.
(e) Waiver of Breach. No waiver of a breach of any
provision of this Agreement by any party shall be effective unless made
expressly in writing and no such waiver shall constitute or be
construed as a waiver by such party of any future breach of the same or
any other provisions of this Agreement.
(f) Counterparts. This Agreement may be executed and
delivered in two or more counterparts, whether by original, photocopy
or facsimile, each of which shall be an original document and all of
which together shall constitute a single binding agreement.
(g) Notice. Any notice required hereunder shall be deemed
given if in writing and delivered to the other party at its last known
address, either by transmitting via facsimile at its facsimile
telephone number, or three (3) days after deposit in the U.S. mail,
postage prepaid and addressed to the party; provided however, that any
notice of default or of termination hereunder shall be deemed given
only if in writing and delivered to the party entitled to notice,
either by personal delivery, Federal Express or other nationally
recognized courier service or certified or registered mail, postage
prepaid, return receipt requested and addressed to:
IF TO BRIAZZ, TO: WITH A COPY TO:
Briazz, Inc. Dorsey & Whitney LLP
3901 7th Avenue South, #200 1420 Fifth Avenue, Suite 3400
Seattle, Washington 98108 Seattle, Washington 98101
Attention: Chief Executive Officer Attention: Kimberley R.
Anderson, Esq.
Facsimile: (206) 467-1970 Facsimile: (206) 903-8820
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IF TO FFG, TO: WITH A COPY TO:
Flying Food Group, L.L.C. Shefsky & Froelich Ltd.
212 North Sangamon, Suite 1-A 444 North Michigan Avenue-Suite
2500
Chicago, Illinois 60607 Chicago, IL 60611
Attention: Chief Executive Officer Attention: Michael J. Choate
Facsimile: (312) 243-5088 Facsimile: 312-527-5921
or to such other address and/or such other counsel as the parties may
designate from time to time.
(h) Affiliates. The term "affiliate" shall have the same
meaning as set forth under Rule 405 promulgated under the Securities
Act of 1933, as amended. The parties agree that they shall take no
action either directly or indirectly, through affiliates or otherwise,
intended to circumvent the purpose or intent of this Agreement, which
calls for FFG to be the exclusive supplier of Products to BRIAZZ during
the term of this Agreement.
(i) Captions. The captions and numbers of the various
sections hereof are included for convenience of reference only and do
not in any way affect the meaning or interpretation of the substantive
provisions hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
FLYING FOOD GROUP, L.L.C., a BRIAZZ, INC., a Washington corporation
Delaware limited liability company
By: ________________________________ By: ________________________________
Its: ________________________________ Its: ________________________________
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