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MANUFACTURING AGREEMENT
This Manufacturing Agreement ("The Agreement") is made as of this 5th
day of March 1999, between LYONS MAGNUS, a California corporation, having its
principal place of business at 1636 South Second Street, Fresno, California
(herein after "Packer") and AQUA VIE BEVERAGE CORPORATION, a Delaware
Corporation, having its principal place of business at 333 South Main Street
Suite 201, Ketchum, Idaho (herein after "Company").
RECITALS
WHEREAS Packer is engaged in the business of preparing and
aseptically processing fruit, fruit juices, beverage products and other related
commodities in Fresno, California and Florence, Kentucky;
WHEREAS Company is engaged in the business of developing, marketing
and selling certain products including various proprietary beverages; and
WHEREAS Company desires to retain Packer to aseptically process and
package their proprietary beverage products for it on the terms and conditions
as set forth herein.
WHEREAS Packer proposes to provide at its best available price to
utilize its organization and production capabilities support the Company in
development, production and distribution of its products to the extent desired
by the Company, so that the Company may emphasize product development, marketing
and sales with all other activities at its option fully supported by the
organization and production capabilities of Packer.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Packer and Company agree as follows.
I. Product Specifications: Processing and Packaging.
A. Processing: For the term of this Agreement, Packer will aseptically
process and package for Company several Company proprietary beverage
products known as Hydrators and Nutritionals, other Company
developed or acquired proprietary products, Smoothies and other
similar products (the "Products"). In accordance with the
specifications as developed jointly by Company and Packer, (the
"Specifications"), (Exhibit A) and the terms and conditions of this
Agreement. Packer shall initially process and package seven flavors
of Hydrators(TM) and three Nutritional products (the "E Line"(TM),
Elixir(TM), Empower(TM), and Ecstasy(TM)) in either of the two
containers as listed below in
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Section B, and a line of 3 or more Smoothies provided by Packer.
During the term of this Agreement, Company may request Packer to
process and package additional flavors and/or package configurations
upon thirty (30) days written notice to Packer providing Packer has
the capacity and available equipment to produce such products and
Company agrees to pay the price that Packer demands for such
production.
(1). A line of Smoothie products for retail bottles have been
developed by Packer and will require production test runs for each
flavor to verify shelf life stability and other quality attributes
all at Packer's expense. Test runs were conducted on Peach and
Raspberry Smoothies on February 12, 1999, and samples in PET bottles
have been delivered to the Company for evaluation and flavor
enhancement. Additional flavors will be produced and delivered to
the Company from time to time upon request. Shelf life studies will
be conducted for sixty (60) days from the test production and if
approved by Packer, and the cost parameters are mutually acceptable,
the Smoothie product will then be released to Company.
(2). Smoothie products developed by Packer for retail bottles will
be under license to be exclusively enhanced, produced and sold by
the Company for a period of 6 (six) months after shelf life studies
are completed and a flavor is released to the Company for sale.
Thereafter, the exclusive production and sales right of the Company
will continue as to a flavor provided the Company sells not less
than an aggregate of 50,000 cases in the first per year of all
Smoothie flavors, and 50,000 cases thereafter per year, increased by
10% per year over the preceding year. If this sales level is not
attained, the company will have a non-exclusive right to produce and
sell a Smoothie flavor.
B. Packaging: The Products shall be packaged in either 16 ounce and/or
12 ounce PET bottles with 28 mm openings with either flat or sports
closures. Such bottles will be further packaged in cases consisting
of 24 bottles as further described in the Specifications as set
forth hereto in Exhibit A. Packaging in Company's gift packs or in
less than 24 bottle cases may be covered by separate cost quote.
Bottles shall be labeled with full wrap around labels with all
artwork and plate costs to be charged to Company. Company will
utilize Packer's label vendor unless the Vendor's costs are not
competitive. Packer, in any instance, must approve any new label
vendors.
C. Labeler: In the event Company elects to utilize a full sleeve shrink
label, a specialized label applicator will be purchased by Company
for the approximate sum of $95,000 plus conveyor modifications of
$10,000 for a total of $105,000 for use in Packer's line to produce
Company products, and such other non-competitive products as may be
agreed upon from time to time between the parties, subject to
availability limitations and payment for use. Packer will install
this labeler and components at a cost to be borne by Packer of
approximately $15,000 to $20,000. Packer will maintain equipment in
top
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condition at all times. If Packer utilizes this equipment for other
projects, Packer agrees to pay Company at the rate of $.10 per case
for all throughput cases. The equipment can not be used for projects
that involve products that directly compete with the Products of the
Company as defined herein or subsequently added. Packer will have
the option of purchasing the equipment from Company at the
termination of the Agreement based upon a twenty percent per year
depreciated value. At the end of five years, Packer may acquire
ownership of the equipment for $1, however, the Company may still
utilize said equipment without charge for labeling its products, and
Packer will replace the Labeler with new equipment if considered
necessary by Company at no cost to Company for acquisition or use.
D. Company is aware and understands that it is responsible for and will
pay all costs associated with the changing of flavors and/or
container sizes which are detailed on Packer cost quotations in the
form set forth in Exhibit B.
E. Packer agrees to process a minimum of 50,000 cases of Product per
month, exclusive of the Smoothie product production, for the Company
based upon quarterly projections received from the Company. Forward
reserve volume will be calculated by reserving one hundred fifty
percent of the preceding quarterly volume to a maximum of 100,000
cases per month. Example: If Company orders and ships 100,000 cases
in Quarter 1, Packer will then commit to processing 150,000 cases in
Quarter 2, adjusted for seasonality. When Company volume reaches
100,000 cases per month for 3 continuous months then the volume will
again be increased by a factor of 125% per quarter.
F. Packer agrees in good faith to provide volume discounts to Company
that reflect Packer's ability to secure such discounts by its
purchasing.
G. All Products shall be aseptically processed and packaged at Packer's
facility in Fresno, California.
H. Cross Sales: (1) A vital issue to the spirit of this agreement, is
the concept of "cross sales" of each party's products by the other
party. "Cross Sales" will include but are not limited to the Packer
providing to the Company the exclusive rights to label, market, and
sell the product line called "Smoothies", originally developed by
the Packer subject to the conditions set forth above, other
Packer-label products; and the Company providing to the Packer the
option to have the exclusive right to market and sell, through a
licensing agreement (or some mutually agreed to alternative method),
Aqua Vie Products through the Packer's Food Services Distribution
Network, subject to potential acceptable sales demand therefor.
(2) From time to time, at the request of the Company, Packer will
make available to Company on an exclusive basis for enhancement,
production and
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sale any Packer-label products for all sales exclusive of Packer's
Food Services Distribution Network. Said exclusive license will
continue from year to year if Company sells 50,000 or more cases of
said product during a year, or averaged over a two year period,
whichever is less. If said sales levels are not met, the Company
shall have a non-exclusive right for production and sale. Whether or
not exclusive, packer will not offer products provided by it to
Company hereunder to competitors or entities if it will derogate or
detract from the sales activities of the Company.
I. The Company may distribute and sell the Products worldwide; however,
Products bottled by Packer for foreign sales will be subject to Company
satisfying import compliance.
II. Sourcing of Raw Materials and Packaging.
A. Packer will make available at cost, plus appropriate loss factors
based on volume as setout in "Specifications" Exhibit A, any raw
materials and packaging supplies currently maintained in the
Packer's raw material inventory requested by the Company for use in
this project. Special raw materials currently not inventoried by
Packer which Company specifies as a necessary component in the
Products formulation and packaging of its Products, not including
the production of the Smoothie product which costs shall be covered
separately, shall also be purchased by the Packer or the Company to
support this project at Company's expense. Special flavor components
shall be timely furnished to the Packer by the Company in order to
support production schedules. Packer shall bear all risk of loss
based upon its failure to account for or negligence leading to
inventory loss on all of the above mentioned raw materials and
flavor components and shall be accountable for these supplies and
materials and will provide inventories on a monthly basis or more
often if required to adequately manage the production function.
B. Packer will review all raw material requirements and provide
appropriate inbound quality control and inventory procedures to
assure that all raw materials meet the Specifications and are
adequately accounted for.
C. Company shall place orders for the Products approximately four weeks
prior to expected shipment date. Upon receipt of a valid purchase
order, Packer shall, within three (3) working days of receipt
thereof, forward an invoice for said order with appropriate detail
acceptable to Company. Company will then forward funds or letter of
credit to Packer who will allow Packer to order raw materials and
schedule processing time. Products will be produced no later than
three 3 weeks after receipt of funds or letter of credit. At the
conclusion of each run, a final invoice will be prepared indicating
the exact number of cases of Products produced with a resulting
charge or credit, with any such charge amount to be cleared prior to
any subsequent orders being accepted.
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D. Packer shall bear risk of loss based on failure to account for
damage to or inventory loss on raw materials and supplies. Packer
shall maintain books and records relating to all such raw materials
and will provide detailed schedules of raw material inventories on
hand as verified by a physical inventory observation on a monthly
basis if required to meet Company's production requirements.
III. Manufacturing
A. Packer will process and package Products for Company in accordance
with the Specifications. Packer may change Specifications that
relate to the production of the Products from time to time and any
such changes will only be effective upon written notice from Packer
to Company and approved in writing by Company, which approval shall
not be unreasonably withheld. Company may change Specifications that
relate to matters other than production scheduling of the Product
from time to time and any changes will only be effective upon
fifteen (15) days written notice from Company to Packer and must be
approved in writing by Packer.
B. Packer shall store all products and raw materials at a temperature
that is suitable to maintain the quality of the Products in
accordance with the Specifications.
C. Packer will maintain production records on all raw materials
utilized in sufficient detail so that Packer and Company may track
product batch numbers to specific raw materials and finished goods
code numbers. Prior to the acceptance of incoming raw materials,
Packer will test samples of such raw materials to ensure that these
raw materials meet the Specifications. Raw materials failing to meet
the Specifications will be returned to the vendor and Company shall
have no obligation to pay Packer for any non-conforming raw
materials returned to vendor by Packer. Manufacturing yield loss on
production runs of twenty (20) hours shall be no more than five
percent. Manufacturing yield loss on production runs exceeding
twenty (20) hours shall be no more than three percent. Packaging
yield loss shall be less than two percent (flavor and size change
issues excepted). Manufacturing yield loss on production runs of
less than 20 hours will be detailed on cost quotations on a form as
set out in Exhibit B.
D. Products shall be processed on tubular heat exchange equipment to
include appropriate heating, hold times and cooling to conform to
the Specifications.
E. The fees provided as set forth in Exhibit B shall constitute payment
for all services provided by Packer hereunder including, without
limitation, all product processing, raw material receiving, quality
control procedures, microbiological testing of the product, and
record keeping required hereunder
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including the production and accounting functions necessary to
fulfill documentation of packaging of raw materials by lot numbers
to correspond with finished goods code numbers on all Products,
warehousing, accounting, product development, and general
administrative costs.
IV. Warehousing and Testing
A. For the term of this Agreement Packer agrees:
1) To conduct all microbiological testing of the Products as
required by the Specifications and hold all finished Products
for a period of no less than six (6) days pending
microbiological approval and release for shipment.
2) To transfer all finished Products to a warehouse facility in
Fresno, California that will be adequately ventilated to
maintain the quality of the Products in accordance with the
Specifications or, at the option of the Company, to some other
warehouse facility.
3) To warehouse all raw materials in appropriate storage areas in
Fresno, California, which will preserve the quality of such
raw materials to enable such raw materials to meet the
Specifications.
4) To receive and process, at the Company's option, all inbound
orders from Company for Products, to generate bills of lading
and load Products for shipment as directed by Company with all
complete inventory control; and
5) To provide finished goods, accounting systems, and inventory
control documentation to Company on a monthly basis.
B. For the term of this Agreement, Company, at its option, agrees:
1) To forward orders for Products to Packer on a monthly basis
which will specify the dates the Products shall be furnished
and available for shipment to Company's customers; and
2) To arrange for shipping of all Products F.O.B. Packer's
warehouse in Fresno, California. Packer can assist in
arranging transportation if required by Company, however,
payment guarantees will be necessary.
V. General
A. Company will be assigned an account executive, Mr. Larry Young, who
will be responsible for the management and administration of this
agreement on behalf of Packer including and without limitation all
areas of manufacturing and processing of the Products from both a
technical and business standpoint.
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B. Upon receipt of orders from Company, Packer will schedule same into
normal production to ensure a timely delivery of all Products in
accordance with Section II.C.
C. Packer will place code markings on all finished Products that
include such Products' day code and "use by date" and which conform
in all respects to the Specifications. The code markings will
include bar coding and item numbering on all secondary packaging and
master pallet identification labels.
D. Packer will provide to Company a certificate indicating proof of
product liability insurance. This certificate shall show liability
coverage of no less than $10,000,000 in the aggregate and $1,000,000
per occurrence and shall name the Company as an Additional Insured.
E. Company shall take delivery of the finished Products no later than
thirty (30) days from the date of production.
F. Packer will approve or submit changes to any proposed press release
containing their name within 24 hours of submission to them or
within that same time provide written response containing the
reasons for their objection.
G. Packer intends to make available its organizational, production, and
purchasing capabilities to facilitate the business of the Company to
the full extent desired thereby, subject to other obligations of
Packer, so that the Company may to the extent desired thereby devote
its attention to marketing, product development and sales activities
without the distraction of developing its own capabilities in the
areas which may be supported by Packer.
VI. Effective Term
The term of this Agreement shall commence on the date this Agreement is
signed by the parties and will continue in full force for a term of three
consecutive years from that date. The term of this agreement will be
renewable on a year to year basis with 12 month written notice by Company
to Packer.
VII. Forecasts
Upon execution hereof, Company shall provide Packer with a written ninety
(90) day forecast of its needs for production of the Products and shall
thereafter update this forecast on a monthly basis. Estimates contained in
any forecast shall not be deemed to constitute a binding commitment to
purchase on behalf of the Company.
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VIII. Termination
A. This Agreement may be terminated:
1) By Packer, immediately without notice, if Company shall become
insolvent, or shall file a voluntary petition in bankruptcy,
or there is a filing of an involuntary petition in bankruptcy
against Company, or an appointment by a court or a temporary
or permanent receiver, trustee, or custodian for Company or
Company's business or if Company shall make a general
assignment for the benefit of its creditors except to prevent
an involuntary petition to bankrupt the Company by creditors
due to past performance of the Packer.
2) By Company, immediately without notice, if Packer shall become
insolvent, or shall file a voluntary petition in bankruptcy,
or there is a filing of an involuntary petition in bankruptcy
against Packer, or an appointment by a court or a temporary or
permanent receiver, trustee or custodian for Packer or
packer's business or if Packer shall make a general assignment
for the benefit of it's creditors; except to prevent an
involuntary petition to bankrupt the Packer by creditors due
to past performance of the Company.
3) By either party, with cause, upon thirty (30) days written
notice to the other party; except in the case of product
recall due to negligence on the part of the Packer.
4) By either party, upon the breach of this Agreement by the
other party and thirty (30) days advance written notice for
the non-breaching party to the breaching party that specifies
the breach; provided, however, that if the breaching party
shall remedy such breach during such thirty (30) day period,
then any such notice of termination shall be null and void;
except for non-payment or failure to pay in a timely manner as
contract requires, then contract can be terminated on ten (10)
days written notice by Packer to Company.
5) Thirty (30) days following receipt by one party hereto of the
notice, as described below:
If either party hereto (the "Defaulting Party") is at
any time during the effective term of this Agreement
prevented or delayed in complying with any provision of
this Agreement by reason of matters such as acts of God,
strike, civil commotion, riots, war, revolution, acts of
governments, or any similar cause which is reasonably
beyond the control of the Defaulting Party, but
excluding lack of funds, unless caused by one of the
parties
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against the other due to neglect, or failure to perform
according to the terms of this Agreement; then the
duties and obligations of both parties hereto shall be
suspended for the duration of the event preventing
proper performance under this Agreement; provided,
however, that if such prevention or delay shall continue
in excess of thirty (30) days, the other party hereto
shall immediately have the right to terminate this
Agreement upon thirty (30) days prior written notice to
the defaulting party.
B. In the event this Agreement is terminated:
1) All obligations of each party shall be adjusted up to and
including the date of termination; except in the instance of
Products recalled due to negligence of the Packer, which will
enure to the time when all settlements are satisfied between
the Company and it's customer(s).
2) Packer shall, within thirty (30) days following the date of
termination, destroy or cause to be destroyed in compliance
with any and all applicable regulations, any finished Product
which is not in compliance with this Agreement, and
3) Company shall within thirty (30) days following the date of
termination, remove all unused raw materials supplied by or
paid for by it hereunder, which are at Packer's facilities.
C. In addition to any other rights of Packer under this Agreement, if
within thirty (30) days following the date of termination, Company
shall not have paid in full for the finished Products or raw
materials, then Packer shall be entitled to sell the same to satisfy
any outstanding obligation or liability owed by Company to Packer at
the date of termination, but at all times must meet the requirements
and restrictions as set forth in Agreements between Company and it's
customers.
IX. Warranties; Indemnities
A. Packer warrants that all of the Products supplied to Company
pursuant to this Agreement shall be free from defects and shall
conform in all respects to the Specifications as may be modified by
the written Agreements of the parties from time to time.
B. If any of the Products do not conform in all respects to the
Specifications, Company shall have the right to reject such Products
provided that it gives Packer notice in writing within ten (10) days
of receipt of such shipment at final destination point as identified
by Company at time of shipment as THE FINAL DESTINATION POINT.
Company shall return any rejected Products
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to the Packer at Packer's expense unless otherwise instructed by
Packer. Company shall not be obligated to pay the Processing Fee on
any rejected Products, and to the extent such Processing Fee has
been paid by Company prior to rejection, Packer shall reimburse
Company for such Processing Fee as soon as practicable after
rejection of any such Products, Company shall not be required to pay
Packer for any raw materials consumed in the processing of any
rejected Products, and to the extent any rejected Products was
produced from raw materials paid for by Company, Packer shall
reimburse Company for the cost of any such raw materials as soon as
practicable after rejection of such Products.
C. Packer agrees to indemnify and hold harmless Company and it's
directors, officers, employees, agents and representatives from and
against any loss, cost, liability or expense (including any
reasonable attorney's fees) arising from or related to any claim by
any such third party alleging injury to such third party resulting
from defects in the Product(s ) supplied hereunder resulting from
defects in the manufacturing of the Product(s) supplied hereunder.
D. Company agrees to indemnify and hold harmless Packer and its
directors, officers, employees, agents and representatives, from and
against any loss, cost, liability or expense, (including reasonable
attorney's fees) arising from or related to any claim by any third
party alleging injury to such third party resulting from defects in
the Products supplied hereunder resulting in defects in the Products
from shipping, marketing and storage by Company.
X. Integration
This Agreement supersedes all prior agreements and negotiations between
the parties respecting the subject matter hereof and shall not be varied,
amended or supplemented except by writing of subsequent or even date
executed by the authorized representatives of the parties.
XI. Successors and Assigns
A. This Agreement and the rights and obligations arising herefrom are
binding upon the successors or permitted assigns of the parties
hereto.
B. Packer may not assign this Agreement in whole or in part by
operation of law or otherwise without the prior written consent of
Company. Any attempted assignment in derogation or this provision
shall be null and void.
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XII. Authorized Representatives
The individuals signing this Agreement represent and warrant that they are
authorized to execute this Agreement by and on behalf of their respective
corporations and to bind such corporations to the terms and conditions
hereof.
XIII. Inspection Rights
Upon forty-eight (48) hours advance written notice to Packer, Company
and/or its authorized representatives may enter the premises of Packer (i)
to determine whether Packer is complying with the provisions of this
Agreement, (ii) to observe and inspect the raw materials inventoried,
(iii) to observe Packer's testing and quality control procedures, and (iv)
to inspect the books and records of Packer relating to this Agreement and
the transactions contemplated hereby. Company and its authorized
representatives shall be permitted to make and retain copies from Packer's
books and records.
XIV. Notices
Any notice or report provided for in this Agreement shall be deemed
sufficiently given when sent by certified or registered mail, postage
prepaid, personally delivered or by overnight mail as follows:
If it is for Packer, to:
Lyons Magnus
Attn: Robert Smithcamp
1636 S. Second Street
Fresno, CA 93702
If it is for Company, to:
By Mail:
Aqua Vie Beverage Corporation
Attn: Tom Gillespie
P.O. Box 6759
Ketchum, ID 83340
Or if by express mail delivery:
Aqua Vie Beverage Corporation
Attn: Tom Gillespie
333 S. Main Street Ste. 201
Ketchum, ID 83340
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The parties may, from time to time, specify in writing
other addresses for this purpose. Any notice, consent or other
communication required or permitted to be given hereunder shall be
deemed to have been given on the date of mailing, or personal
delivery thereof and shall be conclusively presumed to have been
received by the second business day following the date of mailing or,
in the case of personal delivery, the actual day of personal delivery
thereof, except that a change of address shall not be effective until
actually received.
XV. Governing Law
This Agreement is made under and shall be governed by and construed
in accordance with the laws of the State of California; without
reference to conflict of law principals.
XVI. Miscellaneous
A. The headings and captions contained in this Agreement are of
reference purposes only and shall not affect the meaning or
interpretation of the Agreement.
B. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which together
shall constitute but one and the same instrument.
C. If any article, section, subsection or provision of this
Agreement, or the application of such article, section,
subsection or provision, is held illegal, invalid or
unenforceable under present or future laws effective during
the term of this Agreement, it is the intention of the parties
hereto that the remainder of this Agreement shall not be
affected thereby, and it is also the intention of the parties
that in lieu of any such illegal, invalid or unenforceable
clause or provision, there be added to this Agreement by the
court or other party making such determination of a clause or
provision as similar in terms and substance to such clause or
provision as may be real, valid and enforceable.
D. The exhibits are part of this Agreement as if set forth fully
herein.
E. Subject to the terms and conditions of this Agreement, each of
the parties will use all reasonable efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable, under the applicable
laws and regulations or otherwise, to fulfill its obligations
under this Agreement and to consummate the transactions
contemplated by this Agreement.
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XVII. Time
Time is of the essence to this Agreement.
IN WITNESS WHEREOF, Company and Packer have executed this Agreement
by their duly authorized representative this ____________ day of
________________, 1999.
<TABLE>
<CAPTION>
<S> <C>
Packer: Company:
Lyons Magnus Aqua Vie Beverage Company
By: By:
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Title: Title:
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Date Date: -----------------------
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