Copacking And Storage Agreement

EXHIBIT 10.5


CONFORMED COPY


COPACKING AND STORAGE AGREEMENT


THIS AGREEMENT (this "Agreement") is entered into and made effective as of December 21, 2004 by and between Townsends, Inc., a Delaware corporation ("Townsends"), and Kahiki Foods, Inc., an Ohio corporation ("Kahiki").


RECITALS


A. Townsends is an integrated poultry producer in the business of selling further processed poultry products to its customers in the food service and other industries. Kahiki is in the business of further processing and cooking poultry products to custom specifications.


B. From time to time, Townsends desires to sell to Kahiki certain Townsends raw poultry products (the "Raw Poultry") and Kahiki desires to manufacture and package the Raw Poultry to create finished poultry products (the "Products") as more fully described in specifications to be mutually agreed to by the parties hereto. Kahiki intends to sell the entire output of the Products to Townsends and to temporarily store Product on Townsend's behalf.


C. Townsends and Kahiki have entered into that certain Note Purchase Agreement and the related investment documents (collectively, the "Note Purchase Agreement"), dated as of the date hereof, whereby Townsends has agreed to purchase up to $2,000,000 in convertible notes (the "Notes") from Kahiki. The execution of this Agreement is a condition to the closing of the Note Purchase Agreement.


D. Separate and apart from this Agreement Townsends and Kahiki have executed a Supply Agreement, dated as of the date hereof (the "Supply Agreement"), whereby Townsends has agreed to supply Kahiki with certain poultry products for Kahiki's processing and sale to its customers.


E. Townsends seeks to maintain a reliable volume of certain ethnic food products by entering into this Agreement with Kahiki. Townsends will supply Kahiki with the Raw Poultry pursuant to the terms hereof and will rely on the steady and continuous supply of Products in accepting and soliciting orders for such Products from its customers.


AGREEMENT


NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties hereto, the parties hereto hereby agree as follows:


1. SALE OF RAW POULTRY BY TOWNSENDS TO KAHIKI.


(a) From time to time, Townsends agrees to sell and Kahiki agrees to purchase the Raw Poultry necessary to produce the Products to Townsends' custom specifications. The Raw Poultry will be furnished by Townsends from either Townsends' own internal supply, or sourced (only by Townsends) from a third party.


(b) The terms and specifications of Raw Poultry (including prices) will be agreed upon by the parties and amended from time to time pursuant to documentation, to be executed jointly by the parties, similar in format to that attached hereto as Exhibit A. Upon the execution of any amended Exhibit A, such documentation shall be automatically incorporated herein.


2. SALE OF FINISHED PRODUCTS BY KAHIKI TO TOWNSENDS.


(a) Kahiki agrees to sell Products made from the Townsends Raw Poultry provided under this Agreement only to Townsends and Townsends agrees to purchase Kahiki's entire output of such Products. The packaging and other ingredients necessary for production of the Products shall be purchased by Kahiki from vendors approved by Kahiki and Townsends jointly.


(b) The terms and specifications of Product (including prices) will be agreed upon by the parties and amended from time to time pursuant to documentation, to be executed by jointly executed by the parties, similar in format to that attached hereto as Exhibit B. Townsends agrees to order Products in minimum order sizes that are the lesser of (i) 10,000 pounds of finished Product or (ii) an amount equal to a full shift production run for such Product.


(c) Title to all Product (whether stored by Kahiki or otherwise shipped to Townsends) will transfer from Kahiki to Townsends upon the invoicing of such Product by Kahiki to Townsends.


3. STORAGE ARRANGEMENT.


(a) Kahiki hereby agrees to allow Townsends to utilize Kahiki's refrigerated warehouse(s) located in Gahanna, Ohio for frozen storage of certain of Townsends' poultry products. Kahiki hereby agrees to provide for Townsends, in a segregated manner in an area or areas of Kahiki's premises to be designated by Kahiki, up to 200 pallet spaces to store Products (the "Stored Products"). Kahiki hereby agrees to load and unload the Stored Products from delivery trucks, to use reasonable care in its storage and handling of the Stored Products and to otherwise comply with Townsends' reasonable instructions relating to the Stored Products. If it is determined by Kahiki, reasonably and in good faith, that it does not have sufficient space to offer all or a portion of the 200 pallet spaces to Townsends, Kahiki shall notify Townsends and Townsends may either (i) retrieve such Stored Product or (ii) cause Kahiki to provide alternative storage arrangements, the cost of which shall be assumed directly by Townsends or passed through to Townsends without markup.


(b) Kahiki hereby agrees that its possession of the Stored Products pursuant to this Section 3 is for storage only and that the Stored Products will remain solely the property of Townsends and that Kahiki shall have no ownership interest whatsoever in such Stored Products.


4. TERM. This Agreement shall be in effect for the period from the date hereof until December 31, 2007 (the "Initial Term"), unless earlier terminated in accordance with the provisions of this Agreement. Upon the expiration of the Initial Term, this Agreement shall automatically renew for an additional three (3) year term (each such term, a "Renewal Term" and together with the Initial Term and any Renewal Term, the "Term" ) unless either party notifies the other in writing at least thirty (30) days prior to the second anniversary of the date hereof of its intent that this Agreement shall expire without further renewal.


5. PRICE.


(a) The Raw Poultry shall be purchased by Kahiki from Townsends in accordance with the Raw Poultry pricing schedule set forth on Exhibit A. The Products processed by Kahiki will be purchased by Townsends in accordance with the pricing schedule set forth on Exhibit B.


(b) Upon a material change in specifications of existing Products or a material change in any component of cost manufacture the Products, including the Raw Poultry, Exhibit A and/or Exhibit B as necessary, shall be revised to fairly deal with such Specification or cost changes. A change in cost to manufacture the Products shall be deemed "material" if such change is equal to or greater than 5% of the previous cost.


(c) Townsends shall have the right from time to time, upon reasonable notice and during normal business hours, to review such records of Kahiki as may be necessary to verify the amounts charged under the pricing schedule on Exhibit B. Kahiki shall maintain adequate records to enable the parties to substantiate all production costs. Any such review results shall be based on actual performance achieved and then current input costs. If such a review discloses any deviations from the terms of this Agreement, then the parties shall amend Exhibit B as appropriate and make any payments to reflect the correct pricing.


6. PAYMENT.


(a) Unless otherwise expressly agreed upon by Townsends and Kahiki, payment for the purchase of the Raw Poultry furnished by Townsends shall be due on net fourteen day terms (14) days from the date of invoice to accounts designated by authorized representatives of Townsends. Payment for the purchase of the Products by Townsends will be due on net fourteen (14) day terms from the date of receipt of the Products by Townsends.


(b) On Wednesday of each week, the parties will calculate amounts that have become due under this Agreement since the previous Wednesday and the party that owes the net amount shall effect payment for such amount by wire transfer or ACH of immediately available funds.


7. KAHIKI PRODUCT WARRANTY. Kahiki understands and acknowledges that every component of Townsends' processing and packaging of the Products is important to To ...