**NATIONAL PROCESSING AGREEMENT**

Agreement is made by and between the United States Department of
Agriculture (USDA), Food and Nutrition Service (FNS) and the following
processing company (Processor):

Company Name
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Company Representative
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Address
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

City, State, Zip Code
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Contact Person
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Telephone
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Fax \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

E-Mail
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

and is made with respect to the following facts:

USDA has made federally donated foods (DF) available to State
Distributing Agencies (DA) for distribution to eligible Recipient
Agencies (RA), using the DF identified on End Product Data Schedules
(EPDS) and Summary End Product Data Schedules (SEPDS). Individual State
DAs desiring the Processor's finished product have the option to
participate in this Agreement by signing a State Participation Agreement
(SPA) with the Processor.

The USDA is desirous of arranging with the Processor for the production
of end product(s) as described on the USDA approved EPDS at the
Processor\'s plant location(s) listed in Appendix 1.

This agreement is governed by the current and applicable sections of
Title 7 Code of Federal Regulations, Parts 210 and 250, including any
subsequent changes, and FDD Policy Memoranda.

The negotiation of this Agreement in no way constitutes a commitment
that any DF will be shipped to the Processor. USDA cannot guarantee that
any donated food will be available for processing. DF is made available
depending upon the USDA's ability to purchase and acquire such item.

Processor will notify USDA of any change in material facts that might
have bearing on this Agreement. An example might be a change in
ownership or other such events.

In consideration of the terms and conditions contained within this
Agreement, the parties agree as follows:

1\. **[AGREEMENT INTENT]{.underline}**

This Agreement sets forth obligations under which Processor may utilize
DF to manufacture and deliver specified end product(s) to eligible RA to
ensure the return of quantity, quality and value of such DF.

2\. **[CATEGORIES OF DONATED FOODS IN PROCESSING]{.underline}**

Processor shall adhere to the processing and handling procedures
applicable to the category of DF to be processed under this Agreement as
defined below:

A. **Fully Substitutable Donated Foods** - Such DF may be substituted,
interchanged, or commingled in storage and production with a commercial
food of the same generic identity and of equal or better quality. All
donated foods, except beef, pork, and poultry, are fully substitutable.

The Processor must return to the DA or RA, 100% of the donated food in
the finished end products. The manufacturing loss must be excluded when
calculating the pounds of donated food actually contained in a case of
end product. This is the 100-percent yield requirement.

1\) Processor shall maintain documentation that the commercial food
interchanged, commingled, or substituted for the DF is:

a\. Of U.S. origin; and

b.  Identical or superior to the DF specification.

2\) The Processor may utilize substitutable DF in the manufacture of end
product sold commercially, but shall not otherwise sell or dispose of
the DF in bulk form. Should the Processor elect to utilize a commercial
food in anticipation of replacement with DF, the DA or USDA cannot
guarantee such replacement and assumes no liability for such
replacement. The Processor enters negative inventory at his own risk.

3\) The Processor must be able to demonstrate that purchases of
commercial foods are sufficient to meet commercial production needs.

4\) If use of concentrated skim milk to replace donated nonfat dry milk
is approved by the USDA, the Processor must comply with 7CFR Part 250.30
(f)(3). Substitution with concentrated skim is prohibited for processing
under FD-001: Nonfat Dry Milk Processing.

B. **Limited Substitutable Donated Foods** -- 7 CFR 250.30(f) allows
substitution of commercial bulk pack poultry parts for USDA donated bulk
pack poultry and poultry parts with restrictions.

1\) Limited substitution is an option available to processors, not a
mandatory practice. Participation in limited substitution requires the
processor to submit and obtain FNS and Agricultural Marketing Service
(AMS) approval of a poultry substitution plan. The substitution plan may
include the option to produce a Standard Yield.

2\) Restrictions include, but are not limited to, prohibition against
substituting for backhauled poultry commodity product and substitution
of certain types of the same generic commodity.

3\) Substitution of commercial poultry or poultry parts for the
commodity poultry or poultry parts must be performed using poultry of
U.S. origin that is equal or superior to the USDA processing poultry.

4\) If a processor chooses not to adopt the limited substitution option
for poultry, the processor shall meet all provisions stipulated for
nonsubstitutable commodities.

5\) Processor must be able to demonstrate that purchases of commercial
foods are sufficient to meet commercial production needs.

Substitution may occur in advance of the actual receipt of DF. Should
the Processor choose to use the substitution option prior to the DF
being purchased by USDA, the Processor shall assume all risks. USDA, DA,
and RA cannot guarantee replacement of commercial food utilized in
anticipation of replacement with a DF and assumes no liability for such
replacement. The Processor enters negative inventory at his own risk.

Any donated poultry not used in end products because of substitution
shall only be used by the Processor at one of its facilities in other
commercially processed products and cannot be sold as an intact unit.
However, in lieu of processing the donated poultry, the Processor may
use the commodity product to fulfill other USDA contracts awarded for
delivery to another processor provided all terms of the other contract
are met.

C. **Nonsubstitutable Donated Foods** - Donated beef or pork shall not
be interchanged, commingled or substituted with a commercial food that
could be used in place of the DF in the product formulation. Donated
meat and poultry may be substituted with specific approval by USDA.

Processor shall store such nonsubstitutable DF apart from all commercial
foods and process them apart from regular commercial production.
Processor shall return all products produced above guaranteed minimum
return on the EPDS. If actual yield falls below the guaranteed minimum
return, the Processor shall make up the difference between actual and
guaranteed minimum return by either:

1\) Utilizing commercial food that is of U.S. origin and identical to or
superior in every particular to the DF as evidenced by certification
performed by or acceptable to the applicable federal acceptance service
to produce additional end product. A USDA certificate must be obtained
to certify the quality of replacement meat and poultry; or

2\) Reimbursing the RA or USDA the value of DF that would have been used
to produce the end product.

3\. **[PROCESSING ARRANGEMENTS]{.underline}**

USDA will allow the use of any valid value-pass-through system listed
below or in FDD Policy Memoranda. Individual State DA's will designate
allowable value-pass-through system(s) that are valid for use in that
State in the SPA for end products sold to eligible RA's. One or more
systems may be allowed by the DA. USDA reserves the right to disallow
continued use of a value pass-through system if poor performance is
indicated.

Processor shall maintain delivery and/or billing invoices, refund
applications, canceled checks or other documentation as applicable, to
substantiate that proper value pass through occurred or proper fee for
service was charged.

Arrangements for processing DF into various end products will be based
on one of the following:

A. **Donated Food Value Pass-Through System**

The processing of DF is incorporated into the Processor\'s normal manner
of business, including production, pricing, and delivery of the end
product. The specific value of DF shall be established based on the
designated USDA value. The Processor shall ensure that the full value of
the DF contained in the end product shall be passed on to the eligible
purchasing RA. The dollar pass-through value of DF contained in the end
product shall be provided to the RA either by the USDA or the processor
at the option of the USDA.

1\) [Direct Sales]{.underline}

a\. Discount System

> The Processor shall invoice the RA/DA at net case price which shall
> reflect a discount for the value of the DF. Only when end product has
> been delivered to the RA/DA or the RA\'s/DA designee may DF inventory
> be reduced.

b\. Refund System

> Processor shall invoice the RA at the commercial/gross price of the
> end product. Refunds that reflect the value of the DF contained in the
> end products shall be made to the RA upon proof of purchase. Refund
> payments shall be initiated or paid as follows:
>
> \(1\) RA shall submit a refund application to the Processor within 30
> days from the end of the month of the date of delivery. RAs may submit
> refund applications to the processor on a quarterly basis if the total
> refund due is \$25 or less during the quarter.
>
> \(2\) Within 30 days of the receipt of the refund application,
> Processor shall compute the amount and issue payment of refund
> directly to RA. Processors may issue payment of refunds on a quarterly
> basis if the total payment due to that RA is \$25 or less during the
> quarter. Sales cannot be reported and the inventory cannot be reduced
> until refunds are actually issued.
>
> \(3\) Copies of refund applications and payment to RAs shall be
> forwarded to appropriate DA by the Processor with the monthly
> performance report.
>
> \(4\) Processor may optionally accept refund applications by
> electronic submission through the Internet, e-mail, or by other
> electronic means. Processor must maintain documentation to support the
> electronic submission was received.

2\) [Indirect Sales]{.underline}

a\. Discount System (Hybrid System)

> The Processor shall sell to the distributor at the commercial/gross
> price. The distributor will invoice the RA at the net case price plus
> the distributor's markup. The net case price shall reflect a discount
> equal to the full value of DF established in this Agreement. The
> distributor shall apply for a refund or credit from the Processor for
> the full value of the DF. Sales verification is required for this
> pass-through system. (See Article 4)

b\. Refund System

> The Processor shall sell to the distributor at the commercial/gross
> price. The distributor will invoice the RA this price plus the
> distributor s markup. Refunds shall be made to the RA by the Processor
> that reflects the value of the DF contained in the end products upon
> receipt of refund application. Refund payment shall be initiated and
> paid the same as listed above in paragraph 1) b. 1 through 4.

3\) [Other Value Pass-Through Systems]{.underline}

> Processors are permitted to use alternate value pass-through systems
> if approved by FNS. These systems must comply with the sales
> verification requirements outlined in 7 CFR 250.19 (b)(2) or alternate
> verification system as approved by FNS.

B. **Fee-For-Service System**

A "fee-for-service" system is a price by pound or by case representing a
Processor's cost of ingredients (other than the DF), labor, packaging,
overhead and other costs incurred in the conversion of the DF into the
specified end product. A discount or refund per case is not established;
consequently there is no credit for the value of DF. The net price is
based on the charge per pound or per case for processed finished
product. End products produced under fee-for-service agreements may be
delivered and invoiced to RA in one of the following ways:

1\) The Processor delivers the end products directly to the RA or RA's
designee and bills the RA for the agreed upon fee for service.

2\) Delivery is made by commercial distributors. Three options for
arranging payment for end products are:

> a\. A dual billing system whereby the RA is billed by the Processor
> for the fee for service and the distributor bills the RA for storage
> and delivery of end products; or
>
> b\. Processor arranges for the delivery with a distributor for the RA.
> The Processor s invoice must include both processing fee and the
> distributor's charges as separate identifiable charges; or
>
> c\. Processor arranges for delivery and billing by a distributor in
> accordance with
>
> FD-025: Fee-For-Service Billing Methods Through a Distributor.
> Processor retains financial obligations for sales to ineligible
> recipients. The distributor never assumes this obligation as the
> processing Agreement is between the Processor and USDA.

4\. **[PROCESSOR SALES VERIFICATION]{.underline}**

If sales verification is delegated by the DA in the SPA for discount
sales made by distributors the Processor shall verify sales conducted
under the terms of Article 3.A.2. and 3.A.3. Verification shall include
a statistically valid sample of reported sales in a manner which ensures
a 95 percent confidence level. All sales reported during a specific
period shall be verified at least semiannually.

The Processor shall verify that sales were made only to eligible RAs and
that the value of DF was passed through to those RAs. Sales verification
findings shall be reported as an attachment to the December and June
State performance reports.

At the same time the sales verification report is submitted, the
Processor shall submit to DA a corrective action plan designed to
correct problems identified in the verification effort. If, after
review, it is determined that the value of DF has not been passed on to
the RAs or if the end products were improperly distributed Processor may
be subject to a claim.

5\. **[END PRODUCT DATA SCHEDULE]{.underline}**

The USDA approved End Product Data Schedule (EPDS), Summary End Product
Data Schedule (SEPDS), and instructions are an integral part of this
Agreement. The Processor agrees to the effective date established by the
USDA on the EPDS for the item(s) listed thereon. Once approved, EPDS are
permanently approved until such time that the product is discontinued by
the Processor, the formulation of the end product changes, or the
Processor is advised to update a formulation based on CPA Audit results.
By entering into this Agreement, the Processor agrees that all previous
versions of EPDS are no longer valid and shall not be permitted to
reduce inventory for any end products which were sold prior to the
effective date so established.

If a CN label is obtained, the information on the EPDS must be based on
the product formulation used by the Processor to obtain the label. For
each end product on the approved EPDS the same formulation must be used
to obtain the label, prepare the EPDS and manufacture the end products.

EPDS contain proprietary product formulations and shall not be
distributed to DA's or RA's. In place of the EPDS, Processor will
provide SEPDS to individual DAs with the SPA. The DA will designate
specific commodities and end products that can be processed and sold to
eligible recipients, and the effective date.

Specific details are contained in the EPDS instructions. The following
information will be included:

A. End product description

B. Product formulation

C. End product return

Specific details are contained in the SEPDS instructions. The following
information will be included:

A. End product description

B. Pounds of DF contained in finished case

C. Where applicable, the value of DF contained in each case

6\. **[PACKAGING]{.underline}**

Processor shall package all end products in accordance with acceptable
standards within Processor's industry and in conformity with federal
requirements which may be applicable during the period of this
agreement. Damaged cases may be rejected at no cost to the USDA, DA, or
RA.

7\. **[LABELING]{.underline}**

Processor shall label the end product container in accordance with
applicable federal labeling requirements. In addition, Processor shall
adhere to the following label requirements:

A. Nonsubstitutable DF as defined in Article 2.C. shall have clearly
shown on the exterior shipping container, and where practical the
individual wrappings or containers within the exterior container, of end
product the legend \"Contains Commodities Donated by the United States
(U.S.) Department of Agriculture. This product shall be sold only to
eligible Recipient Agencies." This requirement may be changed at the
option of the USDA.

B. Processor shall obtain approval through procedures established by FNS
in conjunction with the Food Safety Inspection Service (FSIS) and AMS of
the USDA, and National Marine Fisheries Service of the U.S. Department
of Commerce, or other applicable federal agency for all labels which
make any claim with regard to an end product\'s contribution toward meal
requirements of any Child Nutrition Program.

C. Processor may be required to obtain a Child Nutrition (CN) label for
all end products containing meat, poultry, fish or a meat alternate such
as cheese or peanut butter.

D. A nutritional analysis of finished products that contribute to the
meal pattern must be provided to RA upon request.

8\. **[QUALITY CONTROL (QC)]{.underline}**

As an attachment to this Agreement, the Processor shall provide a
written description of the Processor\'s QC system to the USDA. By
signing this Agreement, the Processor assures that an effective QC
system will be maintained for the duration of this Agreement.

A. Processor shall transport DF picked up from DA or RA; receive,
handle, store and deliver end product in a safe and sanitary manner and
at the recommended temperature for the specific DF and end product
covered by this Agreement.

B. Processor, with the concurrence of USDA, may refuse to accept from
the carrier for the account and disposition of the vendor or USDA any
delivery of DF directly to the Processor's plant or to his authorized
storage agent which does not meet the federal specifications under which
it was purchased and shipped. Processor shall maintain a written plan
for the receipt of donated foods to ensure that only wholesome food that
complies with the Federal specifications is accepted for further
processing.

C. All end product produced under this Agreement shall be processed
according to the health and sanitation standards for plant facilities
and food processing established by the locality or state in which
Processor s plant is located or by the applicable federal standards,
whichever are higher.

D. At the option of USDA, samples may be pulled from delivered end
product for laboratory testing. Processor shall pay costs of such tests
only if product sample tested fails to meet either Agreement
specifications or quality and wholesomeness standards.

E. Processor shall maintain end product batch identification in the
event end product is rejected upon delivery. USDA, DA, or RA designate
shall reject end product failing to meet Agreement specifications or
wholesomeness standards and Processor shall be so notified. Processor
shall be given fifteen days time from this notice of rejection to
negotiate removal of rejected product and replacement by acceptable end
product. If agreement is not reached, the USDA or purchasing RA/DA shall
have the right to purchase the same or similar product on the open
market at Processor's expense. If Processor is unable to arrange removal
of rejected product within a reasonable time, USDA shall proceed to
authorize removal and destruction at Processor's expense.

9\. **[INSPECTION AND GRADING REQUIREMENTS FOR PROCESSING]{.underline}**

The Processor shall be required to provide inspection and/or acceptance
and certification as follows:

A. **Continuous Wholesomeness Inspection** - When donated meat or
poultry products are processed or when commercial meat or poultry
products are incorporated into an end product containing one or more DF,
all processing shall be performed in plants under continuous inspection
by FSIS personnel, or State meat and poultry inspection personnel in
those states certified to have programs at least equal to the federal
inspection program.

B. **Acceptance Service Grading** - All donated meat and poultry
processing shall be performed under AMS acceptance service grading. FNS'
minimum requirement is to verify nonsubstitution and nondiversion.
Additional certification requirements may be requested as part of the
EPDS. Under no circumstances shall Processor set up production runs for
the purpose of circumventing this requirement.

1\) The cost of this service shall be borne by the processor.

2\) Exemptions in the use of acceptance service graders will be
authorized by FNS on the basis of each order to be processed provided
the Processor can demonstrate:

> \(a\) That even with ample notification the Processor cannot secure
> the services of a grader;
>
> \(b\) That the cost for a grader is unduly excessive, as determined
> per order by USDA, relative to the value of food being processed and
> that production runs cannot be combined or scheduled to enable
> prorating of the cost of services among the purchasers of end
> products; or
>
> \(c\) That the documented urgency of the RA\'s need for the end
> product precludes the use of acceptance services

USDA reserves the right to verify Processor\'s claim for exemption.

3\) Copies of all certification forms issued by AMS graders for donated
meat or poultry processing shall be provided to DA with the monthly
performance report.

4\) At the option of USDA other DF may be required to be processed under
the applicable federal acceptance service including the certification
that a commercial food authorized to be substituted for a DF is
identical or superior to the DF specifications.

10\. **[PROCESSING OF DONATED MEAT AND POULTRY]{.underline}**

Fabrication procedures, including quantities of all ingredients must be
fully detailed and attached to the EPDS for all poultry end products.
The procedures must be signed and dated by the Processor and USDA and
provided to the AMS Grader.

A. **Bone Credit**- When providing a bone credit allowance for donated
poultry, Processor must show in the procurement document between the
processor and the recipient, the allowance as a percent of the total raw
product provided. Also, the price per pound must be shown. Processor
shall not salvage any edible portion of the bone credit product as
mechanically deboned meat for Processor's own use or profit.

B. **Rework** - If rework from a batch of donated ground meat or poultry
keeps a batch from yielding the guaranteed minimum yield, commercial
meat or poultry of equal or better quality may replace that amount of
domestic meat or poultry set aside as rework. Rework of that batch and
each successive batch will then be included in the next batch sequence
until such time as regular runs of donated meat or poultry ceases.
Rework from that final batch will then be used by Processor in its own
inventory as replacement for that commercial meat or poultry used in the
first run. Records will be maintained verifying amount of rework in each
batch, and rework of DF in last batch must not exceed the amount of
commercial meat or poultry in first batch. Rework can be substituted in
runs of similar products. Rework can be blended into the production run
in accordance with requirements of FSIS. The AMS grader will record only
the remaining rework. Processor may use one of the three Options listed
below.

1\) The rework may be returned to the RA for production in a frozen
wholesome condition. The cartons must specify legible exterior markings
identifying it as rework, the date processed, and the amount contained
in each carton. Processor will pay shipping charges.

2\) Rework may be incorporated into a future production lot for an
identically formulated end product, provided that the rework derived
from backhauled commodities is only commingled in the processing of
other commodities obtained from backhauling. Any rework whether obtained
from processing of direct shipments or backhauled commodities, must be
recorded on the grading certificate in such a manner that it is
traceable to the production lot from which it was derived.

3\) The rework may be paid for by the Processor based on the contract
value of the commodity contained in the rework. Payment must be
pro-rated and paid to RA.

C. **Guaranteed Minimum Return** -- At the option of the USDA in
cooperation with DA, for any shortage on end products using donated meat
or poultry, Processor may pay for the value of the donated meat or
poultry that would be needed to produce the number of cases of end
product to meet the guaranteed minimum return. The payment is to be made
to RA. A copy of the invoice substantiating the payment must be attached
to the state monthly performance report. Condemned product cannot be
considered part of the guaranteed yield and must be replaced with
certified product or paid for.

Processor is permitted to credit the value of any remaining parts of
poultry such as wings or other non-primal cuts against the cost of
processing. However, the unused parts cannot be considered a part of the
guaranteed minimum yield. The credit must be indicated on the EPDS and
itemized on the invoice.

11\. **[DONATED FOOD CONTAINERS]{.underline}**

Processor shall return to the RA or DA for which the DF was processed,
all funds received from the sale of DF containers minus any expenses
incurred by the processor to effect the sale. Refund of such funds
shall, at the option of USDA, be in the form of a cash payment or
applied as credit. If credit is selected, it must be clearly identified
on the invoice. If the containers are sold for commercial reuse, all
USDA restrictive legends or markings shall be completely and permanently
obliterated or removed by Processor prior to resale.

12\. **[BY-PRODUCTS OF DONATED FOOD PROCESSING]{.underline}**

Salvageable material, not utilized in the end products, that is produced
or derived from manufacturing processes employed in the processing of
DF, shall be disposed of in such a manner as to realize the greatest
value possible for the material. Such material shall, with the
concurrence of USDA, be handled as follows:

A. The by-product, if agreeable to the RA for which the DF was
processed, shall be accumulated and returned in sanitary and wholesome
manner to RA; or

B. At the option of USDA, Processor shall return to the DA or RA for
which the DF was processed all funds received from the sale of
salvageable by-product material minus any expenses incurred by the
Processor to affect the sale. Return of such funds shall at the option
of USDA be in the form of a cash payment or a reduction in the selling
price of the end product based on the following:

1\) The actual value received from the sale of the by-product by
Processor;

2\) The fair market value of the by-product at the time it is further
processed or refined by Processor.

C. Special handling instructions and dispositions of any by-product
shall be determined between the recipient and the processor

13\. **[TRANSFERS OF USDA DONATED FOODS]{.underline}**

Donated Foods (DF) may be transferred only between DAs or RAs with the
concurrence of FNS if applicable. All transfers of DF shall be
documented. Such documentation shall be maintained in accordance with
Article 16.

14\. **[INVENTORY REDUCTIONS]{.underline}**

A. **Substitutable Donated Foods**

For all end products utilizing a substitutable DF the amount of DF
actually contained in the end product as identified in the EPDS and
SEPDS shall be the only basis for inventory reduction on the monthly
performance report. The reduction in inventory can be shown only after
the value of the DF has been passed through to RA/DA.

B. **Nonsubstitutable and Limited Substitutable Donated Foods**

For all end products utilizing nonsubstitutable DF inventory reductions
to monthly performance reports shall be made based on the actual amount
of DF used to produce the end product. The finished goods inventory may
be reduced only upon delivery to eligible RA/DA or RA/DA designee.

Batch records, AMS grading certificates, and delivery documents shall be
maintained as proof of the correct inventory reduction.

15\. **[PERFORMANCE REPORTING]{.underline}**

Processor shall submit monthly reports pertaining to performance under
this Agreement to the appropriate DA and to FNS, postmarked or
transmitted electronically no later than 30 days after the close of the
reporting period. If no activity took place during the reporting month a
performance report shall be submitted to reflect no activity. Negative
inventory shall be reported on monthly reports i.e. negative inventory
resulting from sales of end products containing substituted commercially
purchased foods meeting the standards specified in Article 2. If sales
are made using a refund system the sales cannot be reported and
inventory cannot be reduced until a refund is actually issued.

Processors failing to submit monthly performance reports within the
established time limits will be considered in noncompliance with this
Agreement and this may result in Agreement termination by the USDA.

The USDA will monitor Processors to ensure that the quantity of DF on
hand does not exceed a six-month supply based on the Processor's average
monthly usage.

A\) **State Monthly Performance Reports**

State Monthly Performance Reports shall be submitted to each State with
which the Processors has a State Participation Agreement and in a form
acceptable to the State. The State MPR shall include the following
information:

1.  DF inventory at the beginning of the reporting period;

2.  Total quantity of DF received during the reporting period specifying
    the sources of such DF such as backhaul from a DA or RA, direct
    shipments arranged by a DA, and/or transfers into DAs or RAs account
    and year to date totals;

3.  A list of RAs by name and code number (if applicable) and the
    quantity of each end product delivered to or purchased by the RA for
    the month being reported and for which the RA has received a
    discount or refund.

4.  Total number of units/cases of approved end products by product code
    or brand name;

5.  Total number of pounds of DF reduced from inventory and year to date
    totals;

6.  DF inventory at the end of the reporting period; and

7.  If sales verification on discount sales is delegated to the
    Processor findings shall be reported as an attachment the December
    and June performance reports.

    B\) **National Monthly Performance Reports**

The processor shall submit a summary of State Monthly Performance
Reports to FNS which shows:

1.  The total DF inventory by state and the national total at the
    beginning of the reporting period;

2.  Total quantity of DF received by state during the reporting period
    and year to date totals; and the national total of DF received.

3.  Total number of pounds of DF reduced from inventory and year to date
    totals, by state and national totals;

4.  Total number of pounds finished inventory for nonsubstitutable
    foods;

5.  DF inventory by state and national total at the end of the reporting
    period; and

6.  A certification statement that sufficient DF is in inventory or on
    order to account for quantities needed for production of end
    products for this processing contract and that the Processor has on
    hand or on order adequate quantities of foods purchased commercially
    to meet the Processor\'s production requirements for commercial
    sales.

16\. **[ACCOUNTABILITY AND RECORDS]{.underline}**

Processor shall fully account for all DF delivered or carried forward
from previous school year into its possession by the production and
delivery of an appropriate number of end products specified in this
Agreement to eligible RAs. Donated Food (DF) or the value thereof not so
accounted for shall be the liability of the Processor. All records and
documents to substantiate information provided on reports shall be
maintained on file for a period of three years from the close of the
federal fiscal year to which they pertain unless longer retention is
required for resolution of an audit, litigation, or claim.
Accountability records shall include but not be limited to the
following:

A. **Production Records** - Processor is obligated to meet DF usage in
production stated on the EPDS and shall be liable for shortages and
overages between that stated usage per case of end product and the
actual usage per case of end product. Production records shall include:

1\) Daily or batch production records to substantiate actual DF or
substituted commercial ingredient usage per case of end product. At a
minimum such records shall consist of end product formulation or batch
recipes; production dates, batch identification and/or periods of
production; quantity of DF or substituted commercial food placed into
production for the period; and quantity of end product produced during
the same period of production.

2\) Quality control records as required by Article 8, end product
labeling and any in-plant quality control records used to assure proper
formulation packaging net weight, bacteriological safety and other
controls to assure end product quality and wholesomeness.

3\) Grading certificates and reports for meat and poultry issued on
incoming DF or substituted commercial food; during formulation and
production of the end product; and on the outgoing end product by the
applicable federal acceptance service.

4\) Authorization letters from USDA waiving federal acceptance service
requirements for a specific production run.

B. **Perpetual Inventory of Donated Food** - Processor shall maintain
accurate and complete records with respect to receipt, usage,
disposition, inventory of DF, load out check sheets, bills of lading,
signed delivery tickets, and any other shipping and receiving documents
to substantiate receipt of delivery of DF or substituted commercial food
in the end product to a DA, RA, or their authorized agent.

C. **Other Records**

1\) Quality of Commercial Food. Refer to Article 2.A.1.

2\) Documentation of Value Pass-through or Fee for Service. Refer to
Article 3.

3\) Processor Sales Verification. Refer to Article 4.

4\) Transfers of DF. Refer to Article 13.

5\) Performance Reports. Refer to Article 15.A.

17\. **[AUDITS]{.underline}**

A. **CPA Audits**

Processor is subject to the following audit requirements.

1\) Processors which receive more than \$250,000 each year in DF, shall
obtain an independent CPA audit for that year.

2\) Processors which receive \$75,000 to \$250,000 in DF each year shall
obtain an independent CPA audit every two years.

3\) Those which receive less than \$75,000 in DF each year shall obtain
an independent CPA audit every three years.

The costs of the audits including those costs associated with training
shall be borne by the processors. All audit requirements are to be met
as stipulated in Section 7 CFR Part 250.18. For audit purposes, the
total value of the DF received shall be computed by adding the value of
food received under all states commodity processing programs.

Noncompliance with this audit requirement shall render the Processor
ineligible to renew or enter into another Agreement with any contracting
agency until the required audit has been conducted and deficiencies
corrected.

B. **Right of Review and Audit**

Representative of USDA and General Accounting Office shall have the
right to inspect the DF and substituted commercial food in the
possession of Processor; the facilities used in handling, storing,
processing, and transporting; methods and procedures used by Processor
and/or his agent in carrying out the requirements of this Agreement; and
all records and substantiating documentation required by this Agreement,
during Processor's normal working hours. When requested, Processor shall
furnish such representatives with samples of end product taken from a
production run for testing.

18\. **[LIABILITY FOR DONATED FOODS]{.underline}**

Processor shall be financially liable for the value of all DF in
inventory. Any reduction in financial liability can only be accomplished
by inventory reductions as permitted and documented under Articles 3,
13, 14, and 16.

A. **Substitutable Donated Foods**

Processor shall replace any unaccounted for, loss of, damage to, or
improper use of, DF while in possession of the Processor with commercial
food in compliance with Article 2.A.1.

Processor shall be liable for replacement or payment for any DF,
[whether it be book or physical inventory]{.underline}, in the event a
claim is placed by the USDA.

B. **Nonsubstitutable Donated Foods**

The Processor shall be responsible for loss of, damage to, or improper
use of DF prior to delivery to RA or RA s designee. Losses shall be
promptly reported to USDA with a complete explanation of the
circumstances. Any claim action for the DF shall be determined by USDA
in cooperation with DA, if applicable. If claim is required, Processor
shall, at option of USDA:

1\) Replace the DF with an equal quantity of like in kind commercial
food that is identical or superior to the DF specifications as required
under Article 2.C.1.; or

2\) Pay the DA or RA an amount equal to USDA's most recent per pound
cost information on acquiring and delivering replacement food, relative
to the time of the inability to account for loss of, damage to, or
improper use of the DF, or the current per pound value established by
this Agreement.

19\. **[INVENTORY PROTECTION]{.underline}**

Processor shall furnish to USDA a surety bond obtained only from a
surety company listed in the Department of Treasury Circular 570, Surety
Companies Acceptable on Federal Bonds, an irrevocable letter of credit,
or an escrow account. Such bond, letter of credit, or escrow account
shall be made payable to the USDA, Food and Nutrition Service. The bond
shall guarantee that the Processor shall faithfully account for, return,
or pay for all of the DF received or carried forward, either as physical
or book inventory, in accordance with this Agreement.

Inventory protection is required by the USDA prior to the delivery of DF
to the processor. The minimum amount of the bond, letter of credit or
escrow account (See Article 37), shall be determined by: value of the DF
on hand and on order minus anticipated usage rate during the Agreement
period. The bond shall remain in effect until all donated food is
properly accounted for, paid for or returned in accordance with this
Agreement. Liability for loss is provided in Article 18 of this
Agreement.

20\. **[AGREEMENT TERMINATION]{.underline}**

This Agreement may be terminated immediately at the option of USDA for
noncompliance of its terms and conditions by Processor or if any right
in favor of USDA is threatened or jeopardized by Processor and/or his
agent. This Agreement may be terminated by either party upon 30 days
written notice to the other. Disposition of DF inventory, either
physical or book, with Processor or payment of value thereof shall be
based on the following:

A. When this Agreement is terminated or not renewed, the Processor at
the option of USDA, in cooperation with applicable DA, regarding
nonsubstitutable DF shall:

1\) Return the DF to appropriate DA/RA; or

2\) Pay the appropriate DA/RA an amount equal to USDA s most recent cost
information on acquiring and delivering replacement food relative to the
time of termination; or

3\) Pay the USDA current per pound value established by this Agreement;
or

4\) Pay the Commodity Credit Corporation (CCC) unrestricted sales price.

B. When this Agreement is terminated or not renewed, the Processor at
the option of USDA, in cooperation with applicable DA, regarding limited
and fully substitutable DF shall:

1\) Return the DF to the appropriate DA/RA at a destination designated
by USDA at Processor s expense; or,

2\) Replace the DF with commercial foods of identical or superior to
quality as certified in accordance with Article 2 of this Agreement and
deliver such foods to the appropriate DA/RA at a destination designated
by USDA at Processor s expense; or,

3\) Pay the appropriate DA/RA for the DF based on USDA's most recent
cost information on acquiring and delivering replacement made relative
to the time of termination; or,

4\) Pay the appropriate DA/RA for the DF based on the current per pound
value established by this Agreement; or,

5\) When feasible and with the concurrence of USDA, transfer all DF
inventory of USDA to a designated account; or,

6\) Pay the CCC unrestricted sales price.

21\. **[ASSIGNMENT/DELEGATION OF RESPONSIBILITIES]{.underline}**

Processor shall not assign and/or delegate any of the duties and/or
responsibilities to process DF under this Agreement to any party either
by way of subcontract or any other arrangement without the prior written
consent of USDA. If a subcontract is approved Processor remains
responsible as prime contractor to ensure that DF is accounted for and
processed according to the terms and conditions contained in this
Agreement and is obligated to inform the subcontractor of these
requirements. A subcontractor Agreement (Addendum No. 1) must be filled
out for each contractor and included with this Agreement when submitted
for approval.

22\. **[SOURCES OF DONATED FOOD FOR PROCESSING]{.underline}**

Processor may acquire DF for processing under this Agreement from one or
more of the following sources:

A. Direct shipment of DF to Processor s plant as ordered by USDA. Such
orders should be mutually agreed upon between the Processor and USDA in
consideration of inventory status and estimated deliveries of end
product.

B. Transfer from other States with which Processor has a SPA and as
authorized by both the State and USDA.

C. Backhaul from RA\'s and/or DA\'s inventory.

All quantities of DF and sources must be entered as DF received on the
monthly performance report required in Article 15.A. of this Agreement.
Approval of this Agreement by the USDA shall not obligate the USDA or DA
to deliver DF for processing.

Processor must return, to the applicable DA, a warehouse and consignee
receipt for each direct shipment of DF with the Monthly Performance
Report. The FNS-57, O. S. & D report, if applicable, must also be filed
at this time.

DAs will consult with Processor concerning the number of trucks to be
shipped to Processor before any orders are placed with USDA.

23\. **[DEMURRAGE AND DETENTION]{.underline}**

Processor shall be responsible for all demurrage and detention charges
on shipments of DF placed for unloading at Processor's plant that have
been ordered for delivery as mutually agreed unless other payment
arrangements have been mutually agreed upon between Processor and USDA.
USDA should make every effort to ensure that Processor is notified of
shipment of DF destined for Processor s plant as soon as possible to
assist Processor in coordination of receiving purchasing production and
unloading.

24\. **[INDEMNITY/HOLD HARMLESS]{.underline}**

Processor will indemnify and hold USDA and RA/DA free and harmless from
any claims, damages, judgments, expenses, attorney's fees and
compensations arising out of physical injury death and/or property
damage sustained or alleged to have been sustained in whole or in part
by any and all persons whatsoever as a result of or arising out of any
act or omission of Processor his/her agents or employees or caused or
resulting from any deleterious substance in any of the products produced
from DF for which the Processor is responsible.

25\. **[INSURANCE]{.underline}**

Processor must maintain adequate coverage for all insurable losses.

26\. **[ASSURANCE OF CIVIL RIGHTS COMPLIANCE AND
EMPLOYMENT]{.underline}**

Processor agrees to comply with Title Vl of the Civil Rights Act of 1964
(42 U.S.C. 2000 d et seq.) all provisions required by the implementing
regulations of Department of Agriculture, Department of Justice
Enforcement Guidelines, FNS directives and guidelines to the effect that
no person on the grounds of race color national origin sex age or
handicap shall be excluded from participation in be denied the benefits
of or otherwise be subject to discrimination under any activity carried
out under this Agreement. In addition the Processor agrees not to
discriminate on the basis of race color national origin sex age or
handicap among eligible RAs in the merchandising and sale of end
products containing DF. This assurance is given in consideration of and
for the purposes of obtaining permission to use federal property or
interest in such property without consideration or at a nominal
consideration. This assurance is binding on the Processor its succors,
transferees, and assignees as long as it receives assistance or retains
possession of any assistance from FNS. Processor shall comply with all
applicable federal State and local laws and regulations pertaining to
wages, hours, and conditions of employment.

27\. **[UNLAWFUL BENEFITS]{.underline}**

No employees and/or agent(s) of any party to this Agreement, USDA's
office or any RA for which processing under this Agreement has been
approved, shall be admitted to or may accept any share or part of this
Agreement or to any benefit that may arise therefrom.

28\. **[AGREEMENT ENTIRETY]{.underline}**

This document including the attachments contains the entire Agreement
between the parties hereto relating to the matters covered hereunder.
All prior negotiations, representations, understandings and/or
stipulations are conclusively superseded hereby and no other agreement
or promise made by any party hereto, or by any of their agent(s) that is
not contained in this Agreement shall be binding or valid.

29\. **[MODIFICATION/AMENDMENT OF AGREEMENT]{.underline}**

This Agreement and the Subcontractor Agreement shall not be modified,
amended, altered, or changed except by a written agreement signed by the
parties hereto. If written agreement is obtained for changes in end
product formulation, return of DF, or net case cost, Processor shall not
implement changes until written approval is received from USDA.

30\. **[SERVING OF NOTICES]{.underline}**

Any notice, demand or communication under or in connection with this
Agreement may be served upon the other party by personal service, or by
mailing the same by registered or certified mail, postage prepaid and
addressed to the designated representative of such party at the address
set out in this Agreement. Any such notice or demand shall be deemed
served at the time of personal service or within 48 hours after the
posting of the notice in the United States mail. Either party may change
such designated representatives or mailing address by written
notification to the other party.

31\. **[LEGAL RESOLUTION]{.underline}**

Processor agrees that in performance of this Agreement to obey, abide,
and comply with all applicable local, state, and federal laws and
regulations. If any term, covenant, condition or provision of this
Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the provisions shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.

32\. **[DISTRIBUTION OF COPIES]{.underline}**

USDA and Processor shall retain a copy of the signed Agreement and
Addendum for their records. Copies of the signed Agreement may be
provided to any person upon request as public records under the
applicable federal Freedom of Information laws. USDA will make the basic
Agreement available on the FNS website for DAs to access and general
information for interested parties.

33\. **[ELIGIBLE RECIPIENT AGENCIES]{.underline}**

Upon approval of this Agreement, the Processor shall obtain a State
Participation Agreement (SPA) from the appropriate State DA or DAs where
the processor plans to do business. DAs signing a SPA will provide
Processor with a listing of all eligible RAs with appropriate
identification numbers, if applicable, and addresses. Processor can
reduce inventory only on sales of approved end products to these
eligible RAs.

34\. **[DEBARMENT]{.underline}**

Certification is required by the regulations implementing Executive
Order 12549, Debarment and Suspension, 7 CFR Part 3017, Subpart C. The
regulations were published in the *Federal Register* November 26, 2003
at 6 FR 3266.

By signing this Agreement, the prospective lower tier participant
(Processor) agrees it shall not knowingly enter into any lower tier
covered transaction with a person who is debarred, suspended, declared
ineligible, or voluntarily excluded from participation in this covered
transaction, unless authorized by the department or agency with which
this transaction originated.

The Processor shall notify FNS immediately of the certification status
changes.

35\. **[RESERVED]{.underline}**

36\. **[PERIOD OF AGREEMENT]{.underline}**

This Agreement shall become effective on the date signed by FNS and will
remain in effect until terminated with written notice by either party.

37\. **[AGREEMENT SPECIFIC PROCESSING ARRANGEMENTS]{.underline}**

Processor shall designate the processing arrangements and generic
donated foods to be used during the term of the Agreement (Refer to
Articles 3 and 10). Check the following selected system. (More than one
is allowable.)

\_\_\_\_\_ Full Substitution \_\_\_\_\_\_ 100% Yield

\_\_\_\_\_ Limited Substitution \_\_\_\_\_\_ Standard Yield Option

\_\_\_\_\_ Nonsubstitution \_\_\_\_\_\_ Guaranteed Minimum Return

\_\_\_\_\_\_ Guaranteed Return Demonstration

Donated foods to be utilized in processing:

\_\_\_\_\_ Beef \_\_\_\_\_ Cheese

\_\_\_\_\_ Pork \_\_\_\_\_ Nonfat Dry Milk

\_\_\_\_\_ Chicken \_\_\_\_\_ Fruits:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_ Turkey \_\_\_\_\_ Vegetables:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_ Eggs \_\_\_\_\_ Oil

\_\_\_\_\_ Peanut \_\_\_\_ Grain

Processor shall furnish a performance and surety bond, Irrevocable
Letter or Credit, or escrow account in the amount of
\$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. If processor elects to
supply an Irrevocable Letter of Credit, it must be a confirmed
Irrevocable Letter of Credit in a United States Bank, the terms of which
must be agreed to in advance by the USDA. Changes in the amount of
inventory protection required during the duration of this Agreement will
be attached as an Addendum.

38\. **[AUTHORIZED PROCESSOR SIGNATURE]{.underline}**

Agreement must be signed by Owner, Partner, or Corporate Officer duly
authorized to sign contractual agreements. Disclosure of ownership of
Processor shall be submitted if requested by USDA.

Private Owned - The Owner must sign this Agreement.

Partnership - A Partner must sign this Agreement.

Corporation - A Corporate Officer must sign this Agreement.

If an employee other than these specified individuals signs this
Agreement, a Power of Attorney indicating employee\'s authority must
accompany this Agreement. All addenda to this Agreement shall be signed
by the authorized individual who signed this Agreement except that the
EPDS could be signed by his/her authorized designee.

In witness whereof, the Parties hereto have caused this Agreement to be
signed by their respective agent.

APPROVED

DISAPPROVED

+---------------------------------+---+---------------------------------+
|                                 |   |                                 |
+---------------------------------+---+---------------------------------+
| Cathie McCullough, Director     |   | Name of Authorized              |
|                                 |   | Representative                  |
| Food Distribution Division      |   |                                 |
|                                 |   | Title                           |
| Food and Nutrition Service,     |   |                                 |
| USDA                            |   | Company Name                    |
+---------------------------------+---+---------------------------------+
|                                 |   |                                 |
+---------------------------------+---+---------------------------------+
| Date                            |   | Date                            |
+---------------------------------+---+---------------------------------+

Revised April 2007

**Appendix 1: Processor Plant Locations**

  ------------- --------------- ------------- -------------- --------------
  Plant Name &  Physical        Contact       Phone Number   Fax Number
  Number        Address         Person                       

                                                             

                                                             

                                                             

                                                             

                                                             

                                                             

                                                             

                                                             

                                                             
  ------------- --------------- ------------- -------------- --------------

**[N/A]{.underline}**

**[SUBCONTRACTOR AGREEMENT]{.underline}**

Subcontractor Agreement: Authority USDA FNS 7 CFR Part 250

Whereas\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ (Primary Processor)
holds a National Processing Agreement (hereinafter "Agreement") with the
U.S. Department of Agriculture Food and Nutrition Service and whereas
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(Subcontractor) desires and is capable of performing part of the
Agreement, namely
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(Specify function and USDA donated foods used). It is further agreed
that the Subcontractor mentioned above will conform to all terms and
conditions of the above named Agreement, making this addendum part of
that Agreement.

Subcontractor shall maintain records for three (3) years from the close
of the federal fiscal year to which they pertain and shall make them
available for inspection by either State, federal or local
representatives at any time, without prior notice, during normal office
hours. Processor records shall include the following:

A. Quantity of raw DF received from Primary Processor for each month.

B. Quantities of raw DF and end products remaining on hand for each
month.

C. Quantities of end products delivered to RA or back to the Primary
Processor.

Subcontractor will attach a signed End Product data Schedule to this
Addendum for the end products that are being processed, or any other
function for which the Subcontractor is performing.

ALL PARTIES APPROVE BY SIGNING BELOW:

**PRIMARY PROCESSOR**

Processor: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Address:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Name: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Title:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Signature:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Date: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**SUBCONTRACTOR**

Subcontractor: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Address:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Name: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Title:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Signature:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Date: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

**FNS APPROVAL**

Name: [\_Cathie McCullough\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_]{.underline}
Title: \_[Director, Food Distribution
Division\_\_\_\_\_\_\_\_\_\_]{.underline}

Signature:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Date: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_