Exhibit 10.16




Exhibit 10.16

 

*PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT WHICH HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.

 

FMI Grinding System Lease Agreement


This Agreement is made by and between Beef Products, Inc. (“BPI”),
a Nebraska corporation each having its principal place of business at 891 Two
Rivers Drive, Dakota Dunes, SD 57049; and National Beef Packing Company, LLC
(“NATIONAL”), 12200 North Ambassador Drive, Kansas City, MO 64163.  While this
Agreement is entered into between BPI and NATIONAL, NATIONAL acknowledges, due
to the relationships described below, that many of the services and/or
technology addressed in this Agreement will be provided by parties related to
BPI.

BPI is a closely held Nebraska corporation that is primarily
engaged in the business of producing, distributing, and selling lean beef,
pork, and other meat products.  It currently has production facilities in
Amarillo, Texas; Finney County, Kansas; Waterloo, Iowa; and South Sioux City,
Nebraska.  The majority shareholders of Beef Products are Eldon and Regina Roth. 
BPI’s primary business is the manufacture and sale of frozen meat products
produced through patented and/or proprietary production processes and marketed
to food manufacturers such as NATIONAL who use BPI’s product in combination
with other raw materials in production of NATIONAL’s final product.

Freezing Machines, Inc. (“FMI”) is a technology company that
develops equipment and processes for producing meat products.  The equipment
and processes developed by FMI are proprietary and sometimes subject to letters
patent.  FMI is a closely held company whose sole shareholder is Eldon Roth.  Eldon
Roth is the primary inventor for FMI.

BPI Technology, Inc. (“Tech”) is a closely held Delaware
corporation, formerly known as Beef Products, Inc., that is engaged in the
business of providing technological and manufacturing support services
including research and development, engineering and design services, project management,
operation consulting and sales, marketing and administrative support.  The
majority shareholders of Technology are Eldon and Regina Roth.

FMI has developed a unique grinding system (“grinding
system”) that incorporates patented and/or proprietary technology of FMI and
may be used by NATIONAL or others in the production of comminuted food products. 
Through agreement with BPI, those grinding systems are manufactured/assembled
by BPI at its South Sioux City, Nebraska facilities.  Through agreement with
Tech, once installed, those grinding systems will be monitored and/or
controlled from Tech’s Operations Support Center and other Tech locations.

NATIONAL is a current/potential user of BPI’s frozen
products.  NATIONAL currently purchases BPI’s frozen products for incorporation
into ground beef and other products to customer specifications.  NATIONAL and
BPI desire to further their relationship through this agreement.



 

 

BPI has manufactured for NATIONAL and will lease to NATIONAL
a grinding system designed by FMI and incorporating FMI technology at the price
and upon the conditions noted below.  Through agreement with BPI, Tech will
provide technology support and monitoring/controls technology assistance to
NATIONAL regarding operation of the grinding system.

1.         AGREEMENT EFFECTIVE PERIOD 

This Agreement is effective on January ____, 2007 (date of
first full production using the grinding system), and shall remain effective
for a period of not less than five (5) years, and will continue thereafter
until terminated by either upon at least ninety (90) days prior written notice
to the other as specified herein.  If BPI terminates the agreement, adequate
time will be allowed National to replace the FMI grinding system with an
acceptable alternative.

2.         FOB/COST TO INSTALL 

The grinding system shall be shipped FOB NATIONAL’s Dodge
City, KS facility.  NATIONAL and BPI shall arrange for the installation of the
grinding system at NATIONAL’s facility at BPI’s expense, using only contractors
approved by both NATIONAL and BPI, if any.

3.         TECHNOLOGY AND SUPPORT FEE 

NATIONAL shall pay FMI the sum of $* per pound of product
produced using the grinding system.  This is a preferential rate for the
technology and support fee based upon NATIONAL’s assistance in establishing a
commercial retail market for products produced using the grinding system.  This
technology and support fee is based upon the parties’ anticipation that the
pounds produced at the facility will average * pounds or more per work-day at
the NATIONAL facility.  If the average production for the facility falls below *
pounds per week during any two consecutive months, the parties shall meet to
discuss adjustment to the support and technology fee that may be appropriate,
if any.  The parties will communicate and cooperate with each other as
necessary to achieve such production and to work out any differences that may
arise over production volumes.

* OMITTED PURSUANT TO
A REQUEST FOR CONFIDENTIAL TREATMENT WHICH HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.

 

4.         TERMS OF PAYMENT 

NATIONAL shall begin paying the technology and support fee
for the grinding system following its installation at NATIONAL’s facility,
based upon monthly billings submitted by BPI.  The billings will be based on
throughput numbers supplied by National.  The technology and support fee shall
be paid by NATIONAL to BPI monthly, not later than thirty (30) days after the
end of the month for which the technology and support fee is computed.




 

 

5.         MAINTENANCE OF THE GRINDING SYSTEM 

During the term of this Agreement, the grinding system shall
be maintained in working condition at BPI’s expense.  However, any repair or
restoration of the grinding system caused by acts or omissions on the part of
NATIONAL (items beyond normal wear and tear – for example, damage due to metal
in raw materials) required to maintain the grinding system in working condition
will be made at NATIONAL’s sole expense.  All maintenance and/or repair
activities related to the grinding system must be coordinated through BPI and,
at BPI’s discretion, may be conducted by Technology or contractors retained by
BPI.  It is anticipated that minor, routine preventative maintenance (“PM”) may
take place with the grinding system and be conducted by NATIONAL employees, but
all PMs must be coordinated with and communicated to BPI in advance.  The ONLY
PMs that will be conducted by NATIONAL employees will be operational and
preventative maintenance activities such as; daily assembly and disassembly,
lubrication, inspection, and wear item replacement, as outlined in the users
guide.  No alterations or modifications of any kind will be made to the
grinding system without BPI’s advance consent.

6.         TECHNOLOGY AND SUPPORT SERVICES 

At NATIONAL’s
request, BPI shall provide the following technology and support services for the
grinding system at no additional cost to National:


		v  	
Continuous
monitoring, support, and control as required, provided via voice and data
network connections through BPI’s Operations Support Center; Field Equipment
Support Group, and Systems Engineering Group;

			
	v  	

Operational
analysis and daily summary management provided as requested through BPI’s
Operations Support Center and the Systems Engineering Group;

			
	v  	
Regularly
scheduled (at least quarterly) maintenance and inspection service provided
through BPI’s Field Equipment Support Group;

			
	v  	
Upgrades
and/or enhancements to the grinding system and/or support technologies and
services, as they become available;

			
	v  	
Unscheduled
corrective maintenance service provided through BPI’s Field Equipment Support
Group; and 

			
	v  	
Expanded
monitoring, support, and controls as requested for additional NATIONAL
equipment, provided via voice and data network connections through BPI’s
Operations Support Center; Field Equipment Support Group, and Systems
Engineering Group.  Expanded services, if any, will be at an additional cost as
agreed upon by the parties.

			




 

7.         EXCLUSIVE USE OF FMI GRINDING SYSTEM FOR RETAIL GROUND BEEF 

For a period of * months from the date of first full
production run using the FMI grinding system, BPI agrees not to sell or lease a
grinding system of similar design to any competitor of NATIONAL in the retail
ground beef market.  However, NATIONAL is aware of BPI’s intention to construct
other facilities of its own and the likelihood of such facility(ies) producing
ground beef that may compete in some markets with NATIONAL’s products.  Nothing
contained in this Agreement shall limit BPI’s ability to construct such
facility(ies) and produce for itself or copack for others products that may
compete with NATIONAL’s products.  If at any time during the term of this
agreement, BPI leases a grinding system of similar design to any competitor of
NATIONAL or BPI copacks products in its own facility(ies) using a grinding
system of similar design, the third party leasing the grinding system or
purchasing BPI copacked products shall be charged a technology and support fee
not less than the preferential rate charged NATIONAL.  If BPI’s facility will
become operational within the exclusivity period outlined above, the parties
will communicate and cooperate with each other as necessary to accommodate
operation of the BPI facility, while maintaining a market advantage for
National and to work out any differences that may arise with regard to the same.




 

 

* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
WHICH HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

8.         PRODUCT QUALITY ASSURANCE/MINIMUM LBT INCREASE 

The parties acknowledge that NATIONAL’s decision to lease the
grinding system from BPI is based upon the parties belief that the grinding
system will produce a finished ground beef product that is superior to
comparable products of National’s best competitor.  In addition, the parties believe
that use of the grinding system will allow NATIONAL to increase its use of BPI
frozen products, with an average increase of * percent (*%) over current
incorporation rates (*% * v. *%).  Should NATIONAL not be able to produce a
superior product using the grinding system, or if the average increase in use
of BPI frozen products does not meet expectations, the parties shall meet to
discuss adjustment to the support and technology fee that may be appropriate,
if any.  The parties will communicate and cooperate with each other as
necessary to achieve such product quality and increases in LBT use and to work
out any differences that may arise over such quality and/or volume issues.

* OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
WHICH HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

9.         ASSIGNMENT 

Neither party may assign any right or interest under this
Agreement without the prior written consent of the other party.

10.       CHOICE OF LAW 

This Agreement and all transactions under it shall be
governed by the laws of the State of Nebraska.  Any disputes arising under this
Agreement shall be submitted exclusively to court of competent jurisdiction in
the State of Nebraska, each party hereby acknowledging the jurisdiction of such
courts over both the subject matter and parties to this Agreement.

11.       COMPLIANCE WITH LAWS 

Each party and all persons furnished by or acting on behalf
of either party shall comply at their own expense with all applicable laws,
ordinances, regulations and codes, including the identification and procurement
of required permits, certificates, licenses, insurance, approvals, inspection,
regulatory (e.g. emissions) and safety (e.g. UL) requirements in connection
with their respective performance under this Agreement.




 

 

12.       DEFAULT 

If either party shall be in material breach or default of any
of the terms, conditions or covenants of this Agreement and if such breach or
default shall continue for a period of seven (7) days after the giving of
written notice to the breaching party by the other party, then, in addition to
all other rights and remedies which the aggrieved party may have at law or
equity or otherwise, such party shall have the right to terminate this
Agreement.

13.       INDEMNITY 

Each party, in its capacity as the “Indemnifying Party”
agrees to indemnify, defend and hold harmless the other party and its
affiliates, customers, employees, successors and assigns from and against any
direct losses, damages, claims, fines, penalties and expenses (including
reasonable attorney’s fees) that arise out of or result from the Indemnifying
Party’s negligence or willful misconduct or its obligations under this
Agreement, provided that the party seeking indemnification notifies, as soon as
reasonably possible, the other party of the filing of such a claim, provides
the indemnifying party full cooperation in the defense of such claim, at the
indemnifying party’s expense, and affords the indemnifying party full control
over the defense and settlement of such claim.

14.       LICENSES 

No licenses, express or implied, under any patents are
granted by BPI to NATIONAL under this Agreement.

15.       LIMITATION OF LIABILITY; INSURANCE 

In no event will either party be liable for loss of profits,
loss of revenue, special, indirect or consequential damages arising out of its
actions or failures to act in connection with this Agreement.  This limitation
does not apply to:

(i)         Damages of any sort arising out of death or personal injury, or 

(ii)        Damages from breach of the confidentiality obligations, or 

(iii)       Awards of damages to third parties, however denominated.

16.       NON-DISCLOSURE AGREEMENT 

Since BPI, and NATIONAL each expect to disclose to the other
party certain information concerning equipment designs, products, business and
strategies which are considered confidential and proprietary and which neither
party wants to disclose to others, they agree to keep all such information
confidential.  The Parties agree not to make any general press releases or
public disclosures regarding the details of this Agreement without the prior
review and written consent of the other Party.  Each party may however disclose
the existence of this Agreement to its respective customers on an as-needed
basis for sales and marketing purposes without the prior consent of the other
party.  Furthermore, neither Party shall use the other Party’s trademarks,
trade names and service marks without the prior written consent of the other
Party; if such consent is given, then the Party shall disclose that such
trademarks, trade names, and service marks are the sole property of the other
Party.




 

 

17.       NOTICES 

Any notice given or demand which under the terms of this
Agreement or under any statute must or may be given or made by BPI or NATIONAL
shall be in writing and shall be given or made by confirmed facsimile, or
similar communication or by certified or registered mail addressed to the respective
parties as follows:

	To BPI: 	
Beef
Products, Inc.

		
	 	
891 Two
Rivers Drive 

		
	 	
Dakota
Dunes, SD  57049 

		
	 	
Attn:
Richard A.  Jochum, Corporate Administration 

		
	 	
Fax: (605)
217-8001

		
	 	
 

		
	
                               -OR-

		
	 	
 

		
	To NATIONAL:	
National Beef
Packing Company, LLC 

		
	 	
12200 N.  Ambassador Drive


		
	 	
Kansas City, MO  64163


		
	 	
Attn: David Grossenheider


		
	 	
Fax: (816) 713-8885


		


 

Such notice or demand shall be deemed to have been given or
made when sent by facsimile, or other communication or when deposited, postage
prepaid in the U.S.  mail.  The above addresses may be changed at any time by
giving prior written notice as above provided.  The above addresses may be
changed at any time by giving prior written notice as above provided.

18.       SEVERABILITY 

If any of the provisions of this Agreement shall be invalid
or unenforceable, such invalidity or unenforccability shall not invalidate or
render unenforceable the entire Agreement, but rather the entire Agreement
shall be construed as if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of the parties shall be
construed and enforced accordingly.

19.       RISK OF LOSS 

Risk of loss and damage to the grinding system under this
Agreement shall vest in NATIONAL when the grinding system has been installed at
NATIONAL’s facility.

 




 

 

20.       USE OF INFORMATION 

NATIONAL shall view as BPI’s property any idea, data,
program, technical, business or other intangible information, however conveyed,
and any document, print, tape, disc, tool, or other tangible
information-conveying or performance-aiding article owned or controlled by BPI
and identified as proprietary/confidential either in writing or orally.  NATIONAL
shall, at no charge to BPI, and as BPI directs, destroy or surrender to BPI
promptly at its request any such article or any copy of such Information.  NATIONAL
shall keep Information confidential and use it only in performing under this
Agreement and obligate its employees, subcontractors and others working for it
to do so, provided that the foregoing shall not apply to information previously
known to NATIONAL free of obligation, or made public through no fault imputable
to NATIONAL.

21.       WARRANTY 

BPI warrants to NATIONAL that grinding system furnished will
be free from defects in design (as embodied in specifications accompanying the
Agreement), material and workmanship and will conform to and perform in
accordance with the Specifications and drawings set forth in this Agreement. 
THIS
WARRANTY IS IN LIEU OF AND EXCLUDES ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
ARISING FROM OPERATION OF LAW OR OTHERWISE, INCLUDING WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE EXCEPT THAT PURPOSE FOR
WHICH THE GRINDING SYSTEM WAS DESIGNED BY “TECH”.


IN NO EVENT SHALL BPI BE LIABLE TO NATIONAL FOR ANY
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, COSTS, OR EXPENSES (INCLUDING WITHOUT
LIMITATION DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF MARGIN,
LOSS OF USE, LOSS OF CONTRACT, LOSS OF GOODWILL).

22.       ENTIRE AGREEMENT 

This Agreement shall constitute the entire agreement between
the parties with respect to the subject matter of this Agreement and shall not
be modified or rescinded, except by writing signed by the parties.

 

 

	National Beef Packing Company, LLC 	Beef Products, Inc.
	  	  
	  	  
	
By:
  /s/ David Grossenheider               

	By: 
  /s/ Eldon Roth                                      

	
David Grossenheider,

			         Eldon Roth,
		President
	
Executive Vice President

			 
	
 

			 
	
Dated: 
    05/04/06                             
 
	Dated: 
    05/02/06