AGREEMENT
BETWEEN
AMERICAN HEREFORD ASSOCIATION
AND
RED OAK FARMS, INC.
March l4 1997
TABLE OF CONTENTS
ARTICLE I1
DEFINITIONS
Section 1.1 Definitions
Section 1.2 Other Definitional Provisions
ARTICLE 1A
EFFECTIVE DATE
ARTICLE II
RESPONSIBILITIES OF RED OAK
Section 2.1 Program Specifications
Section 2.2 Cooperation with Association
Section 2.3 Protection of Trade Secrets and Exclusive
Proprietary Information
Section 2.4 Indemnification
Section 2.5 Unauthorized Use of Trademark
ARTICLE III
RESPONSIBILITIES OF ASSOCIATION
Section 3.1 Granting Licenses
Section 3.2 Development of CHB Market
Section 3.3 Assistance with Licensed Users
Section 3.4 Promotional Activities
Section 3.5 Unauthorized Use of Trademark
Section 3.6 Cooperation with Red Oak
Section 3.7 Indemnification
ARTICLE IV
ROYALTY FEES
Section 4.1 Payment of Royalty Fee
Section 4.2 Amount of Fee
Section 4.3 Payment of Fees
Section 4.4 Adjustment of the Fee
Section 4.5 Maintenance of Records; Inspection
ARTICLE V
LICENSE GRANTED
Section 5.1 Exclusive License
Section 5.2 Monitoring of Sublicensee Trademark Use
Section 5.3 Ownership of Rights
ARTICLE VI
USE OF TRADEMARK
Section 6.1 Trademark Use
Section 6.2 Scope of License
Section 6.3 Notices
Section 6.4 Copyright
Section 6.5 Acknowledgment of Ownership
Section 6.6 Monitoring of Trademark Use
ARTICLE VII
COVENANTS OF RED OAK
Section 7.1 Use of Program Information
Section 7.2 Sales of Surplus CHB
Section 7.3 Compliance by Affiliates
ARTICLE VIII
QUALITY CONTROL
Section 8.1 Processing
Section 8.2 Review
Section 8.3 Promotional Materials
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Section 9.1 Representations and Warranties of Red Oak
Section 9.2 Representations and Warranties of Association
ARTICLE X
DEVELOPMENTS
Section 1O.1 Changes to USDA Specifications
Section 10.2 Right to Develop
ARTICLE XI
INFRINGEMENT
Section 11.1 Notice of Infringement
Section 11.2 Infringement Claim Against Red Oak
ARTICLE XII
GOVERNMENTAL APPROVALS
Section 12.1 Obtaining Government Certifications
Section 12.2 Filing Governmental Reports
Section 12.3 Payment of Compliance Expenses
ARTICLE XIII
TERMINATION OF EXCLUSIVE LICENSE
Section 13.1 Performance Standards
Section 13.2 Renegotiation of Performance Standards
Section 13.3 Termination of Exclusive License
Section 13.4 Termination by Red Oak
Section 13.5 Termination of the Non-Exclusive License
Section 13.6 Agreement and Non-Exclusive License
Section 13.7 Sublicenses
ARTICLE XIV
DURATION AND TERMINATION
Section 14.1 Duration
Section 14.2 Renewal of Agreement
Section 14.3 Termination
Section 14.4 Consequences of Termination
ARTICLE XV
NONCOMPETITION
Section 15.1 Noncompetition Agreement
Section 15.2 Judicial Determination
ARTICLE XVI
MISCELLANEOUS
Section 16.1 Injunctive Relief
Section 16.2 Entire Agreement
Section 16.3 Assignment
Section 16.4 Waiver
Section 16.5 Independent Contractor
Section 16.6 Headings
Section 16.7 Severability
Section 16.8 Governing Law
Section 16.9 Counterparts
Section 16.10 Notices
Section 16.11 Force Majeure
EXHIBIT I - Certified Hereford Beef Trademark
EXHIBIT 2 - Guaranty
EXHIBIT 3 - Guaranty
AGREEMENT
THIS AGREEMENT is entered into as of March 14, 1997,
between American Hereford Association and Red Oak Farms,
Inc.
RECITALS
A. Association is the owner of United States
Trademark Reg. No. 1,971,889, Registered April 30,1996 for
the mark CERTIFIED HEREFORD BEEF plus Design, and desires to
protect and control the quality of the CERTIFIED HEREFORD
BEEF program and the use of such trademark.
B. Association currently licenses, and intends to
continue to license, retailers, food service outlets, or
other similar persons or entities to advertise, promote, and
sell certified Hereford beef under the aforementioned
trademark.
C. Red Oak intends to be engaged in the procurement,
feeding, processing, and distribution of beef, as a
successor to the business previously conducted by Mid-Ag,
L.C.
D. Red Oak desires to enter into agreement with
Association to arrange to provide certified Hereford beef as
contemplated in Association's certified Hereford beef
program.
In consideration of the foregoing and the mutual
covenants and promises contained herein, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement the
following terms shall have the following meanings:
"Affiliate" shall mesa any person that directly, or
indirectly through one or more intermediaries, controls or
is controlled by, or is under common control with, Red Oak.
"Agreement" shall mean this Agreement, as renewed or
modified from time to time.
"Association" shall mean American Hereford Association,
an Arizona corporation, with its principal place of business
at 1501 Wyandotte, Kansas City, Missouri 64108.
"CHB" shall mean beef in whatever form processed from
Hereford or Hereford-cross cattle that is certified to be
"Certified Hereford Beef" pursuant to the rules and
regulations of the USDA.
"Effective Date" shall mean the date determined in
accordance with Article IA hereof.
"Exclusive License" shall have the meaning given to
such term in Section 5.1 hereof.
"Fee" shall have the meaning given to such term in
Section 4.1 hereof.
"Licensed User" shall mean any retailer, food service
outlet, or other similar retail level person or entity (or
wholesaler designated by Red Oak) that has agreed to
participate in the Program and has been granted a license to
use the Trademark by Association in selling CHB pursuant to
Section 3.1 hereof.
"Non-Exclusive License" shall have the meaning given to
such term in Section 13.3 hereof.
"Program" shall mean Association's Certified Hereford
Beef Program.
"Program Information" shall mean all non-public
information related to the Program, the Trademark, and any
and all other information pertaining to the Program or to
CHB.
"Red Oak" shall mean Red Oak Farms, Inc., an Iowa
corporation wholly owned by Red Oak Hereford Farms, Inc. (a
Nevada publicly traded corporation), with its principal
place of business at 2010 Commerce Drive, Red Oak, Iowa
51566.
"Surplus CHB" shall mean the amount of CHB processed by
Red Oak that exceeds the amount of CHB sold to Licensed
Users.
"Territory" shall mean (i) the United States of
America; (ii) North America (including the United States of
America, Canada and the United Mexican States); and (iii)
the remainder of the world.
"Trademark" shall mean the trademark CERTIFIED HEREFORD
BEEF, a form of which is registered in the United States
Patent and Trademark Office, Reg. No. 1,971,889, attached
as Exhibit 1 hereto.
"USDA" shall mean the United States Department of
Agriculture.
"USDA Specifications" shall mean the specifications and
guidelines approved and used by the USDA in approving beef
as CHB.
Section 1.2 Other Definitional Provisions.
(a) The words "hereof," "herein," and "hereunder" and
words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular
provision of this Agreement, and section, subsection,
schedule, and exhibit references are to this Agreement
unless otherwise specified.
(b) Words of the singular number shall be deemed to
include the plural number, and vice versa, where applicable.
ARTICLE IA
EFFECTIVE DATE
The date upon which the provisions of this Agreement
shall become effective (the "Effective Date") shall be the
date upon which (i) the reorganization of Mid-Ag into Red
Oak, as contemplated in that certain letter agreement, dated
March 4, 1997, between Wild Wings, Inc. and Mid-Ag and (ii)
the transfer of all assets of Mid-Ag to, and the assumption
of all liabilities of Mid-Ag by, Red Oak are completed.
ARTICLE II
RESPONSIBILITIES OF RED OAK
Section 2.1 Program Specifications. Red Oak agrees to
use its best efforts to meet the demand for CHB of
Licensed Users. In this regard, Red Oak agrees that it
shall, without cost or liability to association:
(a) Use its best efforts to arrange for the
procurement and processing of cattle that meet Program
specifications;
(b) Use its best efforts to identify, evaluate, and
enter into processing contracts with beef packers and
processors;
(c) Affix, or cause or ensure the affixation of, the
Trademark as shown in Reg. No. 1,971,889 to all CHB
processed to Program specifications for Red Oak;
(d) Use its best efforts to distribute, market and
sell (or cause to be distributed, marketed and sold)
CHB to Licensed Users in accordance with Program
specifications. Red Oak shall maintain complete and
accurate records of the amount of CHB sold and
distributed to Licensed Users, including the identity
of all such Licensed Users, and shall make such records
available for Association's inspection from time to
time at the request of Association;
(e) Use its best efforts to arrange for the
procurement, processing, distribution, and sale on a
timely basis of the quantity of CHB required by
Licensed Users; and
(f) Use its best efforts to be ready to provide CHB to
Licensed Users no later than March , 1997.
Section 2.2 Cooperation with Association. In carrying
out its responsibilities, Red Oak shall cooperate fully with
Association in all phases of its production, distribution,
and sale of CHB.
Section 2.3 Protection of Trade Secrets and Exclusive
Proprietary Information. Red Oak recognizes that the
Trademark, Program, Program Information, Program
specifications, and any and all information, material, and
documents related thereto constitute trade secrets and
exclusive proprietary information of Association. Except as
necessary to fulfill its obligations hereunder, Red Oak
shall not without the express written consent of Association
directly or indirectly disclose to any other person
whatsoever such trade secrets and exclusive proprietary
information of Association.
Section 2.4 Indemnification. Red Oak hereby agrees to
indemnify and hold harmless Association, its officers,
directors, employees, successors, and assigns against any
and all losses, damages, liabilities, or expenses of
whatever form or nature, including attorneys' fees and other
costs of legal defense, whether direct or indirect, that
they, or any one of them, may sustain or incur as a result
or arising out of any acts or omissions of Red Oak including
but not limited to: (1) breach of any provision of this
Agreement; (2) negligence or other tortious conduct; (3)
actions taken in fulfillment of Red Oak's responsibilities
under Article II hereof, (4) representations, statements or
acts not specifically authorized by Association herein or
otherwise in writing; (5) actions beyond the scope of the
license granted hereunder; (6) violation by Red Oak, or
actions causing Association to be in violation of, any
applicable law, regulation, or order in the Territory; and
(7) any claim in respect of CHB sold by Red Oak.
Section 2.5 Unauthorized Use of Trademark. Red Oak
agrees to notify Association of any unauthorized use of the
Trademark or Program Information that comes to its attention
and acknowledges that Association has the sole right and
power to take action to terminate such unauthorized use and
to prevent other unauthorized uses.
ARTICLE III
RESPONSIBILITIES OF ASSOCIATION
Section 3.1 Granting Licenses. Association agrees that
once a retailer, food service outlet, or other similar
person or entity desires to be granted a license for the
Trademark, and the granting of a license to such proposed
license holder is consistent with Association's Program,
Association will (i) make contact with the proposed license
holder to determine suitability for participation in the
Program; (ii) advise Red Oak of the identity of any proposed
license holder which Association has identified for
participation in the Program; (iii) provide Red Oak the
opportunity to enter into a sales arrangement for CHB with
the proposed license holder (including a review of the
proposed license holder's creditworthiness); and (iv) grant
a license to use the Trademark to such proposed license
holder at the same time the proposed license holder agrees
to purchase CHB from Red Oak, it being understood that
Association retains sole discretion over the granting of a
license to use the Trademark to any person.
Section 3.2 Development of CHB Market. Association
shall continue to identify and develop the market for CHB in
accordance with the guidelines of the Program.
Section 3.3 Assistance with Licensed Users.
Association shall assist Red Oak in coordinating CHB
delivery schedules and CHB supply demands with Licensed
Users.
Section 3.4 Promotional Activities. Association shall
provide information and material on CHB and the Program as
Association deems necessary to assist Red Oak. Association
undertakes to review its promotional materials and
information and its assistance to Red Oak as the market for
CHB grows.
Section 3.5 Unauthorized Use of Trademark.
Association shall monitor the use of the Trademark and act
to prevent any unauthorized use of the Trademark or Program
Information.
Section 3.6 Cooperation with Red Oak. Association may
in its sole discretion make Association staff and employees
available to Red Oak to identify cattle for procurement, to
assist in the procurement of identified cattle, and to
distribute CHB to Licensed Users.
Section 3.7 Indemnification. Association hereby
agrees to indemnify and hold harmless Red Oak, its members,
directors, employees, successors and assigns against any and
all losses, damages, liabilities or expenses of whatever
form or nature, including attorneys' fees and
other costs of legal defense, whether direct or indirect,
that they, or any one of them, may sustain or incur as a
result of (1) a breach of any provision of this Agreement by
Association, (2) any claim by a third party with regard to
any action or inaction of Association under Section 3.1
hereof, and (3) any representation and warranty made by
Association herein proving to have been inaccurate, false,
or misleading.
ARTICLE IV
ROYALTY FEES
Section 4.1 Payment of Royalty Fee. Red Oak shall pay
to Association a per-head royalty fee (the "Fee") on the
number of cattle processed as CHB pursuant to this
Agreement. The Fee shall accrue to Association on the date
the processed beef is certified as CHB pursuant to USDA
specifications.
Section 4.2 Amount of Fee. The Fee shall be $5.00 per
head for each head of cattle processed as CHB during
calendar year 1997, shall be $6.00 per head for the first
100,000 head of cattle processed as CHB and $5.00 per head
for each additional head of cattle processed as CHB during
calendar year 1998 (subject to adjustment as provided in
Section 4.4 hereof), and shall be negotiated for each
subsequent calendar year as provided in Section 4.4. hereof,
provided, however, if the number of head of cattle actually
processed as CHB during calendar years 1997, 1998 and 1999
do not produce Fees payable by Red Oak to Association of at
least $500,000, $725,000 and $850,000 for 1997, 1998 and
1999, respectively, then the amount of Fees that Red Oak
shall nonetheless be required to pay to Association for such
years shall be (i) $500,000 for calendar year 1997, (ii)
$725,000 for calendar year 1998, and (iii) $850,000 for
calendar year 1999. The amount of Fees paid by Red Oak to
Association for calendar year 1997 shall be deemed to
include Fees paid by Mid-Ag, L.C. to Association for
calendar year 1997.
Section 4.3 Payment of Fees. Red Oak shall pay
Association the Fees due under this Article IV on a monthly
basis. Red Oak shall pay the Fees accrued for the previous
month no later than the 15th day of the next succeeding
month; provided, however, that: (i) for calendar year 1997,
Red Oak shall pay to Association Fees of at least $500,000
by December 31, 1997, of which at least $300,000 shall be
paid by August 31, 1997; (ii) for calendar year 1998, Red
Oak shall pay to Association Fees of at least $725,000 by
December 31, 1998, of which at least $425,000 shall be paid
by August 31, 1998; and (iii) for calendar year 1999, Red
Oak shall pay to Association Fees of at least $850,000 by
December 31, 1999, of which at least $450,000 shall be paid
by August 31, 1999. Fees due but not paid shall bear
interest at an annual rate of five percent (5%) over the
prime interest rate quoted by Association's bank on the date
such Fees become due and computed from the date such Fees
become due until the date of payment.
Section 4.4 Adjustment of the Fee.
(a) Association and Red Oak shall renegotiate the Fee
on an annual basis with a view to making any adjustments
thereto that may be deemed necessary by the parties. The
first renegotiation shall take place during calendar year
1997 to take effect in calendar year 1998. Renegotiation of
the Fee shall commence on or before November 1 and shall be
concluded on or before December 15 of each year in which the
parties renegotiate the Fee.
(b) The parties agree that the Fee applicable to
calendar year 1998 will not be increased or decreased more
than ten percent (1O%) from the Fee set forth for such year
in Section 4.2 hereof and the Fee applicable to each
calendar year thereafter will not be increased or decreased
more than ten percent (10%) from the Fee in effect for the
calendar year in which the Fee renegotiations are taking
place. However, if the parties cannot agree to a
renegotiated fee for the following calendar year by December
15 of any calendar year, (1) if the calendar year next
succeeding the calendar year in which the Fee renegotiations
are taking place is an even-numbered year, then the Fee
shall be increased from the Fee set forth in Section 4.2
hereof for calendar year 1998, if the Fee renegotiations are
taking place in 1997, or from the Fee in effect for the
calendar year in which the Fee renegotiations are taking
place, if such renegotiations are taking place in any year
subsequent to 1997, by the greater of (a) five percent (5%)
or (b) the annual rate of inflation for the full calendar
year in which the Fee schedule renegotiations are taking
place as reported by the United States Federal Reserve Bank
in Kansas City on December 31 of such year, or (2) if the
calendar year next succeeding the calendar year in which the
Fee renegotiations are taking place is an odd-numbered year,
then the Fee shall remain the same as the Fee in effect for
the calendar year in which the Fee renegotiations are taking
place.
Section 4.5 Maintenance of Records; Inspection. Red
Oak shall maintain complete and accurate records of the
number of head of cattle processed as CHB under this
Agreement and shall make such records available for
Association's inspection at Association's request.
ARTICLE V
LICENSE GRANTED
Section 5.1 Exclusive License.
(a) Subject to the terms and conditions of this
Agreement, Association hereby grants Red Oak the exclusive
license and right to process, distribute, and sell CHB under
the Trademark in the Territory (the "Exclusive License"),
and to use Program Information in connection therewith,
which Exclusive License may not be assigned or transferred
to others in whole or in part, except as provided herein;
however, such Exclusive License does not extend to the sale
of CHB on a retail basis.
(b) Subject to the terms and conditions of this
Agreement, Association hereby grants Red Oak the exclusive
right to use and affix the Trademark on all CHB processed,
distributed, and sold by or on behalf of or as arranged by
Red Oak in the Territory and upon all descriptive,
contractual, billing and other material referring thereto,
unless such use or affixation is prohibited by Association.
This right to use and affix the Trademark may not be
assigned or transferred to others in whole or in part,
except as provided herein, and exists only so long as CHB is
procured, processed, distributed, and sold in accordance
with the Program.
(c) Red Oak may sublicense to third parties the rights
granted under the Exclusive License if necessary to fulfill
Red Oak's obligations hereunder; provided, however, that
Association gives prior approval to any such sublicensing
arrangement, which approval shall not be unreasonably
withheld. Any sublicense agreement shall allow Association
the right to review the use of the Trademark by the
sublicensee to determine whether the Trademark is being used
by the sublicensee in conformity with this Agreement and the
Program and shall bind the sublicensee to the terms and
conditions of this Agreement (as applicable).
Section 5.2 Monitoring of Sublicensee Trademark Use.
Red Oak recognizes Association's right to maintain control
of the nature and quality of the goods and services provided
under the Trademark and the manner and use of the Trademark.
Red Oak shall review from time-to-time any sublicensee's use
of the Trademark to determine whether the Trademark is being
used in conformity with this Agreement and the Program. Red
Oak shall notify Association and such sublicensee of any
discrepancies in the use of the Trademark, and Red Oak shall
promptly act to correct any discrepancies to Association's
satisfaction.
Section 5.3 Ownership of Rights. Neither this
Agreement nor any operation hereunder or interpretation
hereof shall, at any time, be construed to transfer to, or
confer upon, Red Oak ownership of the Program Information,
the Program, or the Trademark, or to transfer to Red Oak the
right to register any of the same in its name as owner
thereof.
ARTICLE VI
USE OF TRADEMARK
Section 6.1 Trademark Use. Other than the use of its
own name, Red Oak shall not use any other names or marks
other than the Trademark on CHB processed, distributed
and/or sold by or on behalf of Red Oak.
Section 6.2 Scope of License. Except as provided
herein, Red Oak agrees not to use, during the term of the
Agreement or at any time thereafter, any of the Trademark,
any other trademark, service mark or trade or business name
of Association, or any trademarks, service marks, names or
designations deceptively or confusingly similar to the
foregoing, as a trade or business name or part thereof, of
Red Oak.
Section 6.3 Notices. Red Oak agrees to include in its
labeling of all CHB processed or sold by it or on its behalf
under this Agreement appropriate trademark and trade name
notices respecting the Trademark. Such notices must be in a
form approved in advance by Association. Such notice must
also include a legend indicating that the CHB is processed
and sold under license.
Section 6.4 Copyright. Red Oak recognizes that any and
all written material or software relating to the Program and
the Program Information are protected, or are protectable,
by copyright in the name of Association. Red Oak agrees not
to take any action that would violate or cause the violation
of any Association copyright relating to CHB or jeopardize
the ability of Association to protect the Program and
Program Information by copyright in the United States of
America or any foreign country.
Section 6.5 Acknowledgment of Ownership. Red Oak
acknowledges the proprietary rights of Association in the
Trademark and the Program Information and admits the
validity of the Trademark and further agrees that it will
not contest, directly or indirectly, such proprietary rights
or the validity of the Trademark, nor aid others in doing
so.
Section 6.6 Monitoring of Trademark Use. Red Oak
recognizes Association's right to maintain control of the
nature and quality of the goods and services provided under
the Trademark and the manner and use of the Trademark.
Association shall have the right from time to time to review
Red Oak's procurement, processing, and distribution
techniques and those of its sublicensees, solely to
determine whether the Trademark is being used in conformity
with this Agreement and the Program. Association shall
advise Red Oak of any discrepancies in its or any
sublicensee's use of the Trademark; and Red Oak shall, upon
receipt of such advice, promptly correct, or cause a
sublicensee to correct, any discrepancies to Association's
satisfaction.
ARTICLE VII
COVENANTS OF RED OAK
Section 7.1 Use of Program Information. Red Oak agrees
that it will not directly or indirectly use the Program
Information furnished to it hereunder for its own use or in
the processing or sale of any products used or sold by Red
Oak, except in connection with the processing or sale of CHB
in accordance with this Agreement.
Section 7.2 Sales of Surplus CHB. Red Oak may sell
Surplus CHB to any person or entity as long as Red Oak
maintains complete and accurate records of the amount of
Surplus CHB sold and to whom such Surplus CHB was sold and
makes such records available for Association's inspection at
Association's request.
Section 7.3 Compliance by Affiliates. Red Oak shall
ensure that any and all of its agents, representatives,
employees, and Affiliates that become involved in any way in
the fulfillment of Red Oak's obligations hereunder abide by
and comply with the undertakings and covenants of Red Oak
made herein.
ARTICLE VIII
QUALITY CONTROL
Section 8.1 Processing. Red Oak shall process or have
processed on its behalf CHB at packing or processing plants
that meet Program specifications and have been approved by
Association for CHB processing. Association agrees to pre-
approve packing or processing plants at the request of Red
Oak if such plants satisfy Program specifications. Red Oak
shall process or have processed on its behalf CHB in strict
conformity with the Program specifications. Association's
right to establish the standards and specifications for CHB
production shall include the right to designate, approve, or
disapprove the quality of any and all processes, material,
and techniques used for the production of CHB. Association
may withdraw its approval of a packing or processing plant
only with the consent of Red Oak; provided, however, that in
the event of a material deviation from the Program
specifications not approved by Association by any packing or
processing plant, Red Oak shall have thirty (30) days to
correct, or cause the correction of, such deviation; and if
not so corrected, Association may terminate such packing or
processing plant's participation in the Program without Red
Oak's prior written approval, with such termination to be
effective not earlier than ninety (90) days after the end of
the thirty (30) day period for correcting.
Section 8.2 Review. Association shall have the right
from time to time to review Red Oaks procurement,
processing, and distribution techniques and those of its
suppliers and sublicensees, and, where practical, to receive
samples of CHB produced by Red Oak hereunder, so as to
determine whether such CHB is being produced in conformity
with the Program specifications. Association shall advise
Red Oak in writing of any discrepancies in quality or
adherence to the Program specifications. Red Oak shall,
upon receipt of such advice, promptly correct, or cause the
correction of, any discrepancies to Association's reasonable
satisfaction.
Section 8.3 Promotional Materials. All packaging and
other material on which the Trademark appears shall be in
accordance with the Program specifications. At the request
of Association, Red Oak shall submit samples of such
materials to Association for approval. Red Oak agrees to
terminate immediately any such use of the Trademark that
Association reasonably believes not to be in accord with
Program specifications or to be materially inconsistent with
preserving and protecting the Trademark.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Section 9.1 Representations and Warranties of Red Oak.
Red Oak hereby makes the following representations and
warranties, upon each of which Red Oak acknowledges and
agrees that Association is entitled to rely and has relied:
(a) Red Oak is a corporation duly organized, validly
existing, and in good standing under the laws of the State
of Iowa and has the power and right to enter into this
Agreement and to perform its obligations hereunder.
(b) Red Oak's principals have been extensively engaged
in the business of procuring, raising, feeding, and bringing
to market cattle and the distribution of beef, and Red Oak
has no reason to believe that it will not be able to meet
the demands for CHB by Licensed Users.
(c) This Agreement has been duly authorized, executed,
and delivered by Red Oak and constitutes a legal, valid, and
binding obligation of Red Oak enforceable against Red Oak in
accordance with its terms.
(d) Neither the execution and delivery of this
Agreement nor the consummation of the transactions
contemplated hereby violates the laws of the State of Iowa
or of the United States or any court or governmental agency
order binding on Red Oak or requires the consent or approval
of, or the giving of notice by any person to or the taking
of any other action in respect of any governmental agency or
authority or any person not a party to this Agreement.
(e) Red Oak will be duly qualified to transact
business as a foreign corporation and in good standing in
each other jurisdiction in which Red Oak is required to be
registered to fulfill its responsibilities under this
Agreement prior to transacting business in such
jurisdiction.
(f) Neither Red Oak nor any of its Affiliates are
parties to litigation that could have a material adverse
effect on the ability of Red Oak to fulfill its
responsibilities hereunder if such litigation is decided
against Red Oak or such Affiliate.
(g) The Agreement, dated February 19, 1997, with
respect to the slaughter of Red Oak cattle, a copy of which
has been provided to Association, has been entered into by
Red Oak Hereford Farms, Inc. and Beef America and is in full
force and effect.
Section 9.2 Representations and Warranties of
Association. Association hereby makes the following
representations and warranties, upon each of which
Association acknowledges and agrees that Red Oak is entitled
to rely and has relied:
(a) Association is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of Arizona and has the power and the right to enter
into this Agreement and to perform its obligations
hereunder.
(b) Agreement has been duly authorized, executed, and
delivered by Association and constitutes a legal, valid, and
binding obligation of Association enforceable against
Association in accordance with its terms.
(c) Association is the owner of the Trademark, which
is registered with the United States Patent and Trademark
Office as Reg. No. 1,971,589. To its knowledge, Association
is not and will not be subject to any claims that the
Trademark infringes or violates the trademark or other
proprietary rights of any other person in the United States
of America.
ARTICLE X
DEVELOPMENTS
Section 10.1 Changes to USDA Specifications.
Association shall consult with Red Oak, and keep Red Oak
regularly and fully informed, about changes in or additions
to the Program, Program Information, and the Trademark, and
any other developments relating to CHB. No change or
addition to the USDA Specifications or to the Program that
materially adversely affects the Exclusive License granted
to Red Oak hereunder and the use of the Trademark or Red
Oak's right under the Exclusive License pursuant to this
Agreement shall be implemented by Association without the
prior written approval of Red Oak.
Section 10.2 Right to Develop. Except as provided
herein, nothing in this Agreement shall limit in any way
Association's right in its sole discretion to develop,
change, or add to the Program, Program Information, and the
Trademark. Red Oak may suggest changes to the Program,
Program Information, or the Trademark, but Association
retains sole power to change the same.
ARTICLE XI
INFRINGEMENT
Section 11.1 Notice of Infringement. Each party
hereto shall give notice to the other of any infringement or
threatened infringement of the Trademark which at any time
comes to its knowledge. Association has the sole power and
right to institute legal proceedings against the purported
infringer. If Association institutes such proceedings, it
shall be responsible for the payment of all costs and
expenses thereof, including attorneys' fees, and any money
judgment recovered from such action shall become the
exclusive property of Association. Association and Red Oak
agree to cooperate in the prosecution of any such action.
Section 11.2 Infringement Claim Against Red Oak. In
the event Red Oak is charged with infringement of any
trademark or other intellectual property right owned by a
third party as a result of the use of the Trademark, Red Oak
shall promptly advise Association of such charge, and
Association shall make such investigation as Association
deems appropriate and advise Red Oak of Association's
conclusions regarding the merits of such charge.
Association may take such action as Association in its sole
discretion deems appropriate to abate any such charge of
infringement. Except as aforesaid, Association shall have
no responsibility to protect, indemnify, or hold Red Oak
harmless against charges of infringement, and Red Oak shall
bear Red Oaks own expense in any resulting litigation.
Association may, however, at its option and at its own
expense join in any such suit and assume fall responsibility
and control thereof.
ARTICLE XII
GOVERNMENTAL APPROVALS
Section 12.1 Obtaining Government Certifications. It
shall be the responsibility of Red Oak to obtain at its sole
cost and expense any governmental approval or other
certification that may be necessary or appropriate for it to
perform its obligations hereunder, including without
limitation approvals of this Agreement and any approvals
with respect to CHB processed hereunder from the USDA.
Section 12.2 Filing Governmental Reports. Red Oak
shall produce and file at its sole cost and expense all
reports required by any governmental agencies that may be
necessary or appropriate for it to perform its obligations
hereunder.
Section 12.3 Payment of Compliance Expenses.
Association and Red Oak acknowledge that under procedures
established with the USDA, Red Oaks predecessor in the
business proposed to be conducted by Red Oak obtained
certification through monitoring and auditing processes
administered by Association. Pursuant to this Agreement, if
the costs of such monitoring and auditing increase after the
date of this Agreement, then Red Oak shall pay the
additional amount of such costs, within 30 days of the date
of invoice therefor, as long as such procedures are in
place.
ARTICLE XIII
TERMINATION OF EXCLUSIVE LICENSE
Section 13.1 Performance Standards. During calendar
year 2000, Red Oak shall be required to arrange for
processing as CHB at least 165,000 head of cattle.
Section 13.2 Renegotiation of Performance Standards.
(a) If this Agreement is renewed pursuant to Section
14.2 hereof, then the parties shall negotiate in good faith
during the first six months of the year 2000 and each
calendar year thereafter to establish performance standards
for the next calendar year. Subject to Section 13.2(b)
hereof, in such negotiation of new performance standards for
calendar year 2001 and beyond, (1) Association may require
that the new performance standards represent an amount not
less than the greater of (a) the number of head of cattle
actually processed as CHB in the calendar year immediately
preceding the calendar year in which the negotiations are
taking place, and (b) the number of head of cattle actually
processed as CHB in the full calendar year in which the
negotiations are taking place, or (2) notwithstanding any
other provision of this Section 13.2, Red Oak may require
that the new performance standards represent an amount not
more dm one hundred ten percent (110%) of the number of head
of cattle required under this Agreement in the calendar year
in which the negotiations are taking place.
(b) Notwithstanding Section 13.2(a) hereof, in the
event the number of head of cattle actually processed as CHB
by Red Oak in any calendar year equals 500,000 or more,
performance standards shall be negotiated according to the
provisions of this Section 13.2(b). In the calendar year
following the calendar year in which Red Oak actually
processed 500,000 or more head of cattle as CHB pursuant to
this Agreement, the parties shall negotiate in good faith
during the first six months of such calendar year to
establish performance standards for the immediately
succeeding calendar year. In such negotiations of a new
performance standard, (1) Association may require that the
new performance standard shall represent an amount not less
than the average of (i) the number of head of cattle
actually processed as CHB in the calendar year immediately
preceding the calendar year in which the negotiations are
taking place, and (ii) the number of head of cattle actually
processed as CHB in the calendar year immediately preceding
the calendar year referred to in clause (a) of this
sentence, or (2) notwithstanding any other provision of this
Section 13.2, Red Oak may require that the new performance
standard represents an amount not more than one hundred ten
percent (110%) of the number of head of cattle required to
be processed by Red Oak in the calendar year in which the
negotiations are taking place pursuant to Section 13.2(a)
hereof. If the average number of head of cattle referred to
in clause (1) of the preceding sentence equals less than
500,000, then Section 13.2(a) shall apply in renegotiating
the performance standard for the calendar year next
succeeding the calendar year in which such average was
considered in negotiating the performance standard.
(c) The Exclusive License shall terminate at the end
of the calendar year during which the parties fail to agree
on performance standards for the next succeeding calendar
year and the provisions of Section 13.3(b) shall apply.
Section 13.3 Termination of Exclusive License.
(a) If Red Oak does not meet the performance standard
established pursuant to Section 13.1 or 13.2 hereof for a
specific calendar year, then Association may at its sole
discretion terminate Red Oak's Exclusive License granted
under this Agreement and grant Red Oak a non-exclusive
license and right to process, distribute, and sell CHB under
the Trademark in the Territory, and to use Program
Information in connection therewith (the "Non-Exclusive
License"). Any termination of the Exclusive License and the
granting of the Non-Exclusive License pursuant to this
Section 13.3(a) shall be effective on June 30 of the
calendar year immediately following the calendar year in
which Red Oak did not meet the required performance
standard.
(b) In the event the Exclusive License is terminated
pursuant to Section 13.2 hereof, Association shall grant a
Non-Exclusive License to Red Oak.
(c) If Association terminates the Exclusive License
and grants the Non-Exclusive License pursuant to this Section
13.3, then Red Oak shall continue to supply CHB to Licensed
Users that Red Oak was supplying with CHB at the time
of such termination for the remaining term of this Agreement
on terms no less favorable to the Licensed Users than those
that were in effect at any time during the year as to which
the termination relates. Under the Non-Exclusive License,
Red Oak shall not supply CHB to any Licensed User that Red
Oak was not supplying with CHB at the time of the
termination of the Exclusive License.
Section 13.4 Termination by Red Oak. If Red Oak does
not meet the performance standard established pursuant to
Section 13.1 or 13.2 hereof for any calendar year, then Red
Oak may notify Association that it wishes to terminate the
Agreement at the end of the then existing term. Such notice
must be given to Association prior to December 15 of any
calendar year. Upon receipt of such notice by Association,
the Exclusive License granted 'pursuant to Article V hereof
shall be deemed terminated and the Non-Exclusive License
shall be granted to Red Oak. Red Oak's rights and
responsibilities under such Non-Exclusive License shall be
the same as described in Section 13.3 hereof.
Section 13.5 Termination of the Non-Exclusive License.
In the event a Non-Exclusive License is granted by
Association pursuant to Section 13.3 or 13.4 hereof, this
Agreement shall not automatically renew as provided in
Section 14.2 hereof but shall terminate as provided in this
Section 13.5. This Agreement and any Non-Exclusive License
shall terminate upon the earlier to occur of: (1) the
expiration of the then existing term of the Agreement, and
(2) any termination of this Agreement pursuant to Section
14.3 hereof.
Section 13.6 Agreement and Non-Exclusive License. In
the event that Association grants a Non-Exclusive License to
Red Oak pursuant to this Article XIII, the provisions of
this Agreement (to the extent applicable) shall remain in
full force and effect with respect to Red Oak's obligations
under such Non-Exclusive License, including, but not limited
to, Red Oaks obligation to pay Fees to Association.
Section 13.7 Sublicenses. In the event that Red Oaks
Exclusive License becomes a Non-Exclusive License pursuant
to this Article XIII, all sublicenses granted by Red Oak
pursuant to Section 5.1(c) hereof shall be subject to the
terms and conditions upon which Association granted such Non-
Exclusive License. All sublicenses shall terminate at the
same time the Non-Exclusive License terminates hereunder.
ARTICLE XIV
DURATION AND TERMINATION
Section 14.1 Duration. Unless terminated earlier as
provided hereinafter, this Agreement shall be effective on
the Effective Date and remain in force through and including
December 31, 2000.
Section 14.2 Renewal of Agreement. This Agreement
shall automatically renew for a three year period beginning
January 1 of each calendar year, commencing on January 1,
2000, unless the Exclusive License has been terminated and a
Non-Exclusive License granted pursuant to Article XIII
hereof or unless the Agreement is terminated pursuant to
Section 14.3 hereof.
Section 14.3 Termination. This Agreement may be terminated:
(a) immediately by mutual consent of the parties at
any time;
(b) subject to Section 16.3 hereof, immediately by
Association upon written notice to Red Oak in the event of
the sale of all or substantially all of Red Oaks properties
and business to a third party, the merger of Red Oak with
another person or entity, a change in control of either Red
Oak or Red Oak Hereford Farms, Inc., or dissolution of Red
Oak.
(c) immediately by Association upon written notice to
Red Oak in the event that one or both of the following
contingencies have not occurred within 120 days after the
date of this Agreement:
(i) Red Oak shall hire a new chief executive
officer who is given authority to manage Red Oak; and
(ii) Red Oak Hereford Farms, Inc. shall enter into
a binding contract to acquire 100 percent of the
outstanding capital stock of Midland Cattle Company;
(d) immediately upon written notice to Red Oak in the
event that Red Oak Hereford Farms, Inc. does not acquire 100
percent of the outstanding capital stock of Midland Cattle
Company by June 30, 1998;
(e) immediately by Association upon written notice to
Red Oak in the event that the Board of Directors of Red Oak
does not include two directors who each have at least five
years' experience in the production of Hereford cattle.
(f) immediately by Association upon written notice to
Red Oak in the event Red Oak fails to pay when due any Fees
and fails to cure such non-payment within thirty (30) days
from the date of such notice;
(g) immediately by Association upon written notice to
Red Oak in the event that Red Oak Hereford Farms, Inc. does
not execute and deliver to Association Guaranties in the
forms attached hereto as Exhibits 2 and 3 on or before the
earlier to occur of: (i) the date which is three (3) days
after Red Oak becomes a wholly-owned subsidiary of Red Oak
Hereford Farms, Inc. or (ii) seven (7) days after the date
of this Agreement; and
(h) immediately by either party upon written notice to
the other party in the event that such other party shall be
in default in the performance of its material obligations
hereunder and such default is not remedied within sixty (60)
days after notice thereof by the nondefaulting party;
provided, however, that if the defaulting party is working
in good faith and with its best efforts to cure such default
but that such default cannot be cured despite such efforts
within the said sixty (60) day period, the defaulting party
shall have a final period of an additional forty-five (45)
days to cure the default.
Section 14.4 Consequences of Termination.
(a) No termination of this Agreement pursuant to any
cause whatsoever shall release Red Oak from liability to
Association with respect to any payment of Fees already
accrued, any liabilities arising out of the provisions for
indemnification, or the maintenance of Program Information
on a confidential and secret basis pursuant to this
Agreement, nor shall such termination affect any of the
provisions of Sections 3.7, 6.2, 6.4, 6.5, 7.3, 11.2, 14.4,
15.1, 15.2 or 16.1 hereof.
(b) Upon termination of this Agreement, pursuant to
any cause whatsoever (other than a termination pursuant to
paragraph (a) or (c) of Section 14.3 hereof), during
calendar year 1997, 1998 or 1999, all Fees required to be
paid to Association by Red Oak for the calendar year in
which such termination occurs pursuant to Section 4.2 of
this Agreement and not theretofore paid shall become
immediately due and payable to Association.
(c) Upon termination of this Agreement, pursuant to
any cause whatsoever, Red Oak shall immediately pay to
Association all Fees due and shall deliver to Association at
its principal offices all documents and materials pertaining
to the Trademark, Program, Program Information, and any
other information pertaining to CHB supplied by Association
to Red Oak pursuant to this Agreement, all of which shall
thereafter remain the sole and exclusive property of
Association.
(d) Upon any termination of this Agreement, pursuant
to any cause whatsoever, all licenses, sublicenses,
authorities, rights and privileges granted hereunder shall
terminate and Red Oak and any sublicensee of Red Oak shall
cease to use the Trademark, Program, Program Information,
and any other information pertaining to CHB supplied by
Association to Red Oak pursuant to this Agreement.
ARTICLE XV
NONCOMPETITION
Section 15.1 Noncompetition Agreement. During the term
of this Agreement and for a period of 18 months after the
date this Agreement terminates or is terminated as provided
in Section 13.5 or Article XIV hereof, Red Oak agrees that
it will not, directly or indirectly:
(a) create or assist in the creation of any program,
plan, or project pertaining to Hereford beef designed to
compete with Association's Program;
(b) divert or attempt to divert Licensed Users or
potential Licensed Users from buying CHB or participating in
the Program; and
(c) entice or induce or in any manner influence any
person who is or shall be in the employ or service of
Association to leave such employ or service for the purpose
of engaging in a business that may be in competition with
the Association's Program.
Section 15.2 Judicial Determination. If a final
judicial determination or administrative order is made that
the terms of Section 15.1 hereof constitute an unreasonable
or otherwise unenforceable restriction against Red Oak, Red
Oak and Association agree that such provision shall be void
only to the extent that such judicial determination or
administrative order finds such provision to be unreasonable
or otherwise unenforceable.
ARTICLE XVI
MISCELLANEOUS
Section 16.1 Injunctive Relief. Red Oak acknowledges
that the Trademark, Program, Program Information, and all
other information pertaining to CHB comprises valuable
property of Association and that any unauthorized use or
disclosure of the same would cause irreparable injury to
Association that would not be fully compensable in monetary
damages. Accordingly, the provisions of this Agreement may
be enforced by specific or injunctive relief in a court of
competent jurisdiction without the necessity of posting bond
or proving special damages or lack of an adequate remedy at
law.
Section 16.2 Entire Agreement. This Agreement,
including the Schedules and Exhibit hereto, represents the
entire Agreement between the parties on the subject matter
hereof and supersedes all prior discussions, agreements, and
understandings of every kind and nature between them. There
are no conditions to this Agreement not expressed herein.
No modification of this Agreement shall be effective unless
in writing and signed by both parties.
Section 16.3 Assignment. This Agreement may be
assigned, in whole or in part, voluntarily or by operation
of law, or otherwise transferred by either party only with
the written consent of the other, which consent will not be
unreasonably withheld.
Section 16.4 Waiver. The failure of either party to
require performance by the other party of any provision
hereof, or to enforce any remedies it may have against the
other party, shall in no way affect the right thereafter to
enforce this Agreement and require full performance by the
other party. The waiver by either party of any breach of
any provision of this Agreement shall not constitute a
waiver of any succeeding breach of that provision or any
other provision.
Section 16.5 Independent Contractor. The parties agree
that Red Oak and Association are independent contractors.
Under no circumstances shall either party hold itself out as
or be considered an agent, employee, partner, or
representative of the other or otherwise attempt to bind the
other.
Section 16.6 Headings. Any headings used herein are
for convenience of reference only and are not part of this
Agreement, nor shall they in any way affect the
interpretation hereof.
Section 16.7 Severability. Except as expressly
provided herein, and except with respect to Red Oak's
obligation to make payments of Fees to Association as
provided herein, if any provision of this Agreement shall be
adjudicated to be invalid or unenforceable in any action or
proceeding, whether in its entirety or in any portion, then
such part shall be deemed amended, if possible, or deleted,
as the case may be, from the Agreement in order to render
the remainder of the Agreement and any provision thereof
both valid and enforceable.
Section 16.8 Governing Law. This Agreement shall be
construed, enforced, and performed in accordance with the
laws of the State of Missouri, without reference to the
principles of conflicts of laws.
Section 16.9 Counterparts. This Agreement may be
executed in counterparts, each of which shall be an
original, and all of which, taken together, shall constitute
a single instrument.
Section 16.10 Notices. Any notice required or
permitted hereunder shall be in writing and shall be deemed
to have been duly given if (a) sent by registered or
certified mail, postage prepaid, return receipt requested,
(b) hand delivered or sent by private courier or messenger
service, or (c) sent by facsimile transmission with a
confirmation copy as provided in (a) or (b) above, to the
parties at their respective addresses or facsimile numbers
set forth below, or such other address or facsimile number
as either party shall notify the other in writing:
If to Association: American Hereford Association
1501 Wyandotte
Kansas City, MO 64108-1222
Facsimile No.: 816-842-6931
Attn: H. H. Dickenson
with a copy to: Richard N. Nixon
Stinson, Mag & Fizzell, P.C.
1201 Walnut Street
P.O. Box 419251
Kansas City, MO 64141-6251
Facsimile No.: 816-691-3495
If to Red Oak: Red Oak Farms, Inc.
_________________
_________________
_________________
Attn:____________
with a copy to: _________________
_________________
_________________
Section 16.11 Force Majeure. Each party shall, either
wholly or partially, be relieved of its obligations
hereunder during any period of time when performance of this
Agreement becomes commercially impossible for reasons beyond
its control involving strike, war, riot, casualty, final
governmental regulations or intervention and/or acts of God
(each a "Force Majeure Event"). If Red Oak fails to meet a
performance standard established pursuant to Section 13.1 or
13.2 hereof for a particular calendar year because of a
Force Majeure Event, Red Oak shall, nonetheless, be deemed
to have satisfied such performance standard if (i) Red Oak
would have satisfied the performance standard by processing
cattle as CHB during the period affected by the Force
Majeure Event at the average rate at which it processed
cattle as CHB during the portions of such calendar year not
affected by the Force Majeure Event and (ii) the
proportionate decrease in the rate at which Red Oak
processed cattle as CHB during the period affected by the
Force Majeure Event as compared with such rate during the
periods of such calendar year not affected by the Force
Majeure Event is no greater than the proportionate decrease
in the processing of Hereford beef by the cattle industry in
the United States of America as a whole during the same
period of time, as documented by either the USDA or the
National Cattlemen's Association. Once performance becomes
commercially possible the responsibilities and obligations
of the parties shall resume again with full force and
effect. In any situation in which either party claims an
excuse for nonperformance under this Section 16.1 1, it must
give prompt telephonic notice, promptly confirmed by written
notice, of the occurrence and estimated duration of the
Force Majeure Event to the other party and shall give prompt
written notice when the Force Majeure Event has been
remedied or has ended and performance can recommence
hereunder.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the date first written
above.
AMERICAN HEREFORD ASSOCIATION
By:_________________________
Name: H. H. Dickenson
Title: Executive Vice President
RED OAK FARMS, INC.
By:_________________________
Name:
Title: