AGREEMENT AMONG
McCLELLAN CREEK GOURMET MEATS, INC.,
RED OAK HEREFORD FARMS, INC.
AND
MY FAVORITE JERKY, L.L.C.
THIS AGREEMENT is entered into as of July 1, 1998, by and
among McClellan Creek Gourmet Meats, Inc. ("MCGM"), Red Oak
Hereford Farms, Inc. ("Red Oak") and My Favorite Jerky, L.L.C., a
limited liability corporation formed under the laws of Iowa, (the
"Company"), as follows:
WHEREAS, MCGM and Red Oak entered into a Letter of Intent
dated April 1, 1998, a true and correct copy of which is attached
hereto as Exhibit "A" and incorporated herein; and
WHEREAS, one of the purposes related to this Agreement was
the formation of the Company; and
WHEREAS, the parties desire to set forth their agreements
and understandings with regard to the capitalization of the
Company and their understanding of various agreements relating to
their ownership interest in the Company and understandings
concerning the management of the Company;
NOW, THEREFORE, for good and valuable consideration
received, the parties hereto contract and agree as follows:
1. Definitions. The terms set forth below shall have the
definitions given to them for the purposes of this Agreement.
Such terms and definitions are as follows:
a. Excess Cash Flow - "Excess Cash Flow" shall be
determined from the Company's monthly statement of cash
flows as determined by generally accepted accounting
principles (GAAP). This calculated cash balance (beginning
cash each month will be changed by the net cash after
operating activities for the month) will then be reduced by
all financing activities directly related to contractual
obligations for the purchase of equipment necessary for the
Company.
Excess Cash Flow shall be defined as that portion of
cash remaining from the
above calculation after payment of all reasonable and
necessary current operating expenses as determined by GAAP,
including, but not limited to, interest on the promissory
notes of the Company, funding of an agreed operating reserve
requirement of a minimum of two months of projected
operating expenses, equipment obligation payments, and tax
reserve requirements as agreed by the management Committee
of the Company.
b. Management Committee - a committee consisting of
individuals representing the parties to this Agreement with
membership therein to be determined in the manner to be set
forth in the Company's Operating Agreement as contemplated
by this Agreement.
c. Quarterly Budget - a budget for the Company
related to sales and profits or losses with such budget to
be for a three (3) month period of time.
2.Ownership of forty percent (40%) of the Company by MCGM.
MCGM agrees to convey, transfer and assign and by its execution
of this Agreement, does hereby convey, transfer and assign to the
Company its developed product, natural style beef jerky, and any and all
rights, titles and interest MCGM may currently own or have, or in
the future may obtain, in all natural style beef jerky products,
kippered beef products, meat sticks, meat sausage sticks (meat
snacks) and/or meat snack product line extensions. MCGM further
agrees to assign, transfer or convey to the Company any and all
proprietary rights it may have in and to any recipes or
processes, and agrees to enter into an exclusive licensing
agreement with the Company in substantially the form attached
hereto as
Exhibit "B", whereby MCGM shall license, as of the date
of this Agreement, to the Company the exclusive right to use
MCGM's trademarks, tradename or other proprietary identifying
symbols.
In consideration for such conveyances, assignments,
transfers and licenses, the Company shall issue to MCGM a stock
certificate representing ____________________________________
shares of capital stock of the Company (such shares will
constitute forty percent (40%) ownership in the Company if and
when a comparable number of shares of capital stock of the
Company are issued to Red Oak pursuant to the terms of this
Agreement) and shall pay to MCGM the sum of $250,000.00 as
follows:
(i) $10,000.00 upon the execution of this Agreement.
(ii) $40,000.00 which shall be paid in monthly installments
of $10,000.00 with such installments payable in 1998 on
or before the first day of each of the months of
August, September, October and November; and
(iii)$12,500.00 on or before December 1, 1998; and
(iv) $50,000.00 on or before December 31, 1999, subject to
and pursuant to the provisions of Paragraph 5 below;
and
$137,500.00 on or before December 31, 2000, subject to and
pursuant to the provisions of Paragraph 5 below.
3. Ownership of sixty percent (60%) of the Company by Red Oak.
(a) Red Oak agrees to lend to the Company the amount
of money necessary to satisfy the capital requirements of
the Company including, but not limited to, the payments to
MCGM required by the provisions of paragraphs 1(i), (ii) and
(iii) above. Red Oak agrees to guarantee any equipment
leases necessary to facilitate the startup of production by
the Company. Until the aforesaid loan is repaid, any and
all funds lent by Red Oak directly to the Company shall bear
interest at a variable rate which shall be three percent
(3%) per annum in excess of the prime rate of interest, in
effect from time-to-time, as published in the Wall Street
Journal; such interest shall be payable in accordance with
the borrowing conditions applicable to Red Oak. All
outstanding interest and principal shall be due and payable
five (5) years from the date of the earliest advance made by
Red Oak to the Company. Such loan shall be evidenced by an
unsecured promissory note executed by the Company. The
Company shall issue to Red Oak a stock certificate
representing _________________________________________
shares of capital stock; such shares will constitute sixty
percent (60%) ownership in the Company.
(b) Each quarter during the term of this Agreement the
Management Committee shall establish and approve a Quarterly
Budget commencing with the date of this Agreement; a copy
thereof shall be provided to Red Oak. The parties agree
that the required funding to be set forth in the initial
Quarterly Budget shall be $300,000.00. As reasonably needed
and if within the amounts established by the Quarterly
Budget during the nine (9) month period following the date
of this Agreement, the Company shall be entitled to draw
against the funds to be lent by Red Oak as described in 2(a)
above, with such draw to be requested no more frequently
than bi-monthly. Red Oak agrees to fund any such request
within one (1) week from the date of the request.
4. Operating and Membership Agreements. The parties agree
to negotiate, finalize and execute, within thirty (30) days from
the date of execution of this Agreement, an Operating Agreement
governing the Company's operations and a membership-membership
redemption agreement governing the disposition of the members
respective membership interests in the Company. Such Operating
Agreement shall be effective as of the Date of this Agreement.
5. Management; Marketing. The business and affairs of
the Company shall be directed by a Management Committee. The
Company agrees to enter into an Employment Contract with James
B. Davis for a period of five (5) years in substantially the form
attached hereto as Exhibit "C" which agreement shall obligate
Davis to be responsible for the management of the Company's
operations and marketing of the Company's products, all as is
more specifically described in the Employment Contract. Red Oak
agrees to refer for employment or consultation such of its own
sales or marketing personnel, information relating to
distribution channels and other information as Davis may time-to-
time request with regard to the production, management and
marketing of the Company's products.
6. Distributions to MCGM and Red Oak. Until the
distributions to MCGM referred to in paragraph 1 above are paid
in full, sixty percent (60%) of all distributions of Excess Cash
Flow generated by the Company shall be paid to Red Oak and forty
percent (40%) shall be paid to MCGM. MCGM shall apply any of such
payments it receives in reduction of the amounts owed pursuant to
paragraph 1 and Red Oak shall apply such payments in reduction of
the principal of the promissory note owed to it referred to in
paragraph 2 above. After the distributions to be made to MCGM
scheduled in paragraph 1 are paid in full, eighty percent (80%)
of the future excess cash flow payments shall be paid to Red Oak
and twenty percent (20%) shall be paid to MCGM until the
interest and principal of the promissory note owed to Red Oak
referred to in paragraph 2 above is paid in full. After the
promissory note is paid in full, fifty percent (50%) of all
excess cash flow distributions shall be paid to each of the
parties, MCGM and Red Oak.
7. Raw Material; Labels. The Company agrees to purchase
from Red Oak or its subsidiaries all meat necessary for the
manufacture of its product with the price of such meat to be
based upon the formula(s) described on Exhibit "D" attached
hereto and incorporated herein for all purposes. The purchases
shall be on a cash basis or such other terms as the parties may
reasonably agree from time-to-time. In the event Red Oak is
unable to supply such products, the Company is free to purchase
on the open market the amount of such products Red Oak is unable
to supply. Additionally, Red Oak agrees that the Company may
utilize, at its discretion, the tradename or trademark "Red Oak
Farms" on the Company's packaging labels.
8. Notices. All notices or other instruments or
communications provided for in this Agreement shall be in writing
and signed by the party giving same and shall be deemed properly
given if delivered in person, including delivery by overnight
courier, or if sent by registered or certified United States
mail, postage prepaid, addressed to such party at the address
listed below. Each party may, by notice to the other party,
specify any other address for the receipt of such notices,
instruments or communications.
9. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties, their heirs, successors
and assigns.
10. Multiple Counterparts. This Agreement is executed in
multiple counterparts any of which shall be deemed an original.
11. Governing Law. This Agreement has been made under and
shall be governed by the laws of the State of Colorado.
12. Final Agreement; Conflicts. This Agreement represents
the final agreement between the parties and supercedes any and
all other agreements, specifically including, but not limited to,
the Letter of Intent entered into between the parties. Further,
to the extent a conflict with any provisions of the Operating
Agreement of My Favorite Jerky, L.L.C. exists, the provisions of
this Agreement shall govern.
13. Disputes. Any disputes between the parties arising
out of this Agreement shall be resolved through arbitration under
the rules of the American Arbitration Association. The place of
arbitration shall be Boulder, Colorado, unless the parties
mutually agree otherwise.
14. Authority. By their signatures below, the persons
executing this Agreement
hereby represent that they have the authority to bind the
respective parties.
Signed this ____ day of July, 1998, but effective as of the
1st day of July, 1998.
MCGM:
McCLELLAN CREEK GOURMET MEATS,
INC.
By:____________________________________
James B. Davis, President
Address:________________________________
________________________________
RED OAK:
RED OAK HEREFORD FARMS, INC.
By:_____________________________________
Gordon M. Reisinger, President
Address:________________________________
________________________________
THE COMPANY:
MY FAVORITE JERKY, L.L.C.
By:____________________________________
James B. Davis, President
Address:________________________________
________________________________
EXHIBIT "D"
PURCHASE OF RAW MATERIAL
All raw beef subprimals will be purchased by the Company
through Red Oak. Red Oak agrees to provide product to the Company
out of Red Oak's branded product line at a price consistent with
Red Oak's weekly published branded prices. Should Red Oak's
branded product supply be insufficient to meet the Company's
needs, Red Oak shall purchase the quality and specification of
beef required by the Company at "the best market prices" plus ten
cents ($0.10) or such other price as the parties may mutually
agree. The amount of $0.10 shall be reviewed by the parties from
time-to-time and adjusted to a mutually agreed amount to cover
the reasonable expenses incurred by Red Oak in making such
purchase.
"Product" is defined as including, but not limited to, the
following:
A. Beef inside (top) rounds;
B. Beef eye of rounds; and,
C. Beef bottom (flat) rounds.
It is further understood among the parties that "product"
may include frozen product from time to time as conditions may
warrant.