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
Townsends and to Townsends' customers. Accordingly, Kahiki shall develop,
maintain and insure high uniform standards of food safety, sanitation, quality,
cleanliness, appearance, services, facilities, products and techniques. Kahiki
hereby agrees:
(a) To use all materials, ingredients, supplies, labeling,
packaging, methods of production, processing and preparation, as prescribed by,
or that conform with Townsends' Specifications as well as requirements and
regulations administered by the United States Department of Agriculture's Food
Safety and Inspection Service in accordance with the Poultry Products Inspection
Act, the Food and Drug Administration in accordance with the Federal Food, Drug,
and Cosmetic Act, and applicable state and local requirements, and to refrain
from using, selling or storing any Products, materials, ingredients, supplies,
or methods of product
preparation, processing or production that do not meet with such Specifications,
laws and regulations; and
(b) To maintain at all times a sufficient supply of approved
packaging and other ingredients necessary for production of the Products.
8. TOWNSENDS RAW POULTRY WARRANTY. Townsends represents and warrants to
Kahiki that (i) all of the Raw Poultry to be provided hereunder shall be of
merchantable quality and fit for its intended use and consumption as food, (ii)
none of the Raw Poultry as of the date of their sale to Kahiki shall be
adulterated, misbranded or unsafe, within the meaning of the Federal Food, Drug
and Cosmetic Act (the "Act") or the Poultry Products Inspection Act, with all
revisions and amendments pertaining thereto and/or regulations adopted in
accordance therewith or within the meaning of any substantially similar state or
municipal law, (iii) none of the Raw Poultry are restricted under such Act or
any other law from being introduced into interstate or intrastate commerce and
(iv) the title to the Raw Poultry conveyed to Kahiki under the terms of this
Agreement shall be good and the Raw Poultry shall be delivered free from any
security interest, lien or other encumbrance whatsoever.
9. CONFIDENTIALITY. All information, whether written or oral, including
but not limited to, technical know-how, standards, specifications, formula,
instructions, procedures, manufacturing processes and identity of customers,
which Townsends may disclose to Kahiki or to any employee, agent or
representative of Kahiki, unless otherwise specifically stated by Townsends in a
signed writing executed prior to disclosure shall be received by Kahiki and its
employees, agents and representatives on a strictly confidential basis and,
except as provided for herein, may not be disclosed to any third party and may
not be used by Kahiki for any purpose other than performance by Kahiki of its
obligations under this Agreement.
10. NON-EXCLUSIVITY. No provision in this Agreement shall prevent either
party hereto from entering into manufacturing, processing, packaging, and/or
storage agreements with any other parties for any of its products, including the
Products. In addition, Townsends also reserves the right to produce the Products
at its own facility.
11. MUTUAL INDEMNIFICATION.
(a) Each of Kahiki and Townsends shall indemnify the other and hold
the other (and its agents, servants, employees, officers, directors and
customers) harmless from any and all liability, loss, damage or costs including,
but not limited to, reasonable attorney's fees and other costs (other than
consequential damages) resulting from consumer complaints or claims and/or any
other claims or legal actions alleging damage, death, illness or injury to
person or property arising from Kahiki's or Townsends', as the case may be,
performance, failure to perform or failure to perform properly any term of this
Agreement, to the extent such complaints or responsibility for, and the expense
of investigation and litigation or settlement of the above enumerated
complaints, claims, or legal actions are not a direct result of the negligence
of the party seeking indemnification.
(b) Each party reserves the right to approve of the others claims or
legal counsel in the litigation of the above enumerated complaints, claims, or
legal actions, which approval shall not unreasonably be withheld. Settlement of
such claims, if any, must be approved by party seeking indemnification;
provided, however, that in the event such party shall
disapprove any settlement of such a claim otherwise acceptable to the
indemnifying party, and its insurer, if any, the party seeking indemnification
agrees to indemnify and hold harmless the other party, and its insures, if any,
for any liability in excess of the amount of the settlement disapproved of by
the party seeking indemnification.
12. TERMINATION. This Agreement shall terminate at the end of the Term.
This Agreement may also be terminated prior to the end of the Term by (a) mutual
agreement of the parties, (b) either party hereto upon thirty (30) days prior
written notice to the other party, in the event of breach of this Agreement by
the other party hereto which breach is not cured within such thirty (30) day
period, (c) by either party hereto immediately upon written notice to the other
party in the event of the bankruptcy, insolvency or placing of the business of
the other party hereto in the hands of a receiver, (d) by Kahiki, upon ninety
(90) days prior written notice to Townsends, if a Change of Control (as such
term is defined in Section 19 of this Agreement) relating to Kahiki has or will
occur, upon payment to Townsends of an amount equal to Townsend's Lost Profits
(as defined below) on Products that would otherwise be sold during the remaining
Term of the Agreement, calculated based on sales activity for Products in the
year preceding Kahiki's notice of termination. Termination for breach shall be
in addition to such other rights and remedies as the terminating party may have
under applicable law and the breaching party agrees pursuant to Section 11 above
to indemnify and hold the non-breaching party harmless from all loss or damage,
other than consequential damages, caused as a result of the breach. "Lost
Profits" shall mean the net selling price of Product, net of any freight or
commission costs, less the cost of any copacking fee charged by Kahiki.
13. INSURANCE. Kahiki shall provide Townsends with certificates of
insurance from Kahiki's insurer(s) prior to the commencement of performance
under this Agreement. These certificates of insurance shall evidence:
(a) Workmen's Compensation in accordance with the laws of all states
in which work may be performed, including coverage for Employer's Liability with
a limit of not less than $500,000 per occurrence.
(b) Comprehensive General Liability with Personal and Bodily Injury
limits of not less than $1,000,000 per person, $1,000,000 per occurrence, and
Property Damage limits of not less than $1,000,000 per occurrence. This
insurance must include the following features and certificates shall so indicate
that (i) Kahiki's Product Liability Insurance covering Independent Contractors
as may be utilized in the work, (ii) Contractual Liability covering the above
indemnity agreement and (iii) Product Liability including completed operations
covering work performed under this Agreement and Vendor's Endorsement in favor
of Townsends, covering any Products produced pursuant to this Agreement (all
such insurance coverage provided for in this Section 13 hereinafter referred to
as the "Insurance").
(c) These certificates will indicate that Townsends shall be advised
not less than thirty (30) days prior to any change or cancellation in the
Insurance. Townsends shall be named as an additional insured on all
certificates. The completed operations coverage where applicable, shall be
maintained for not less than one (1) year after the end of operations under this
Agreement.
14. FORCE MAJEURE. Delay or failure of performance of either party shall
be excused to the extent that such failure shall be caused by an act of God,
strike or other labor dispute, war
or war condition, riot, civil disorder, government regulation or action,
embargo, fire, flood, accident or other casualty not resulting from negligence
of either party hereto (each, a "Force Majeure Event"). The party invoking the
provisions of this paragraph shall give the other party prompt notice in writing
of the occurrence of any Force Majeure Event. Such excuse shall continue as long
as the Force Majeure Event continues, following which such party shall promptly
resume performance hereunder. If any Force Majeure Event shall continue for a
period of more than ninety (90) days, the non-invoking party shall have the
right to terminate this Agreement upon thirty (30) days written notice.
15. AGENT. This Agreement does not make or constitute Kahiki the agent or
representative of Townsends for any purpose whatsoever. Kahiki shall have no
power or authority to act on behalf of or in the name of Townsends, or to bind
Townsends, either directly or indirectly, in any manner or thing, without the
express written authorization of Townsends.
16. MUTUAL WARRANTY. Each party hereto specifically represents and
warrants to the other that (i) all of the Raw Poultry in the case of Townsends
and Products in the case of Kahiki, provided pursuant to this Agreement shall be
of merchantable quality and fit for its intended use and consumption as food,
(ii) none of the Raw Poultry as of the date of their sale to Kahiki or Products
as of the date of their sale to Townsends, shall be adulterated, misbranded or
unsafe, within the meaning of the Federal Food, Drug and Cosmetic Act (the
"Act") or the Poultry Products Inspection Act, with all revisions and amendments
pertaining thereto and/or regulations adopted in accordance therewith or within
the meaning of any substantially similar state or municipal law, (iii) none of
the Raw Poultry or Products are restricted under such Act or any other law from
being introduced into interstate or intrastate commerce and (iv) the title to
the Raw Poultry conveyed to Kahiki and Products conveyed to Townsends under the
terms of this Agreement shall be good and the Raw Poultry and Products, as the
case maybe, shall be delivered free from any security interest, lien or other
encumbrance whatsoever.
17. FAIR LABOR STANDARDS ACT. Kahiki shall produce all goods under this
Agreement in compliance with all applicable requirements of Sections 6, 7 and 12
of the Fair Labor Standards Act, as amended, or any comparable provisions of any
successor statute and of regulations and orders of the United States of
Department of Labor issued under Section 14 thereof, or any comparable provision
of any successor statute.
18. INTELLECTUAL PROPERTY. Kahiki will not, without Townsends' written
consent, use any of Townsends' trademarks, brand names, Company and/or Division
names, facsimiles of packages, letterheads, invoices or any other material
bearing Townsends' name or that of Townsends' subsidiaries in any of Kahiki's
advertising, promotional material or products.
19. ASSIGNMENT. Neither of the parties shall assign, transfer or purport
to assign or transfer any of its rights or obligations hereunder without the
prior written consent of the other party, such consent not to be unreasonably
withheld or delayed. Notwithstanding the foregoing, in the event that Kahiki
engages in any (a) merger or consolidation into or with any other corporation or
entity, (b) sale, conveyance, transfer, license, lease or other disposition of
all or substantially all of the assets of Kahiki or (c) acquisition by any
person of more than 50% of the voting power of all securities of Kahiki
generally entitled to vote in the election of directors of Kahiki (collectively,
a "Change of Control"), this Agreement must remain with, be assumed by or
assigned to the successor entity controlling the operations or assets of Kahiki
after such
Change of Control, unless otherwise terminated pursuant to Section 12(d) above.
Any default by Kahiki under this assignment provision shall allow Townsends to
terminate this Agreement.
20. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement and understanding of Townsends and Kahiki relating to the subject
matter hereof, and supersedes all other negotiations, agreements,
representations and covenants, oral or written, related to the subject matter
hereof. It is expressly agreed upon by the parties that the attached Exhibits to
this Agreement are a part hereof as if fully set forth herein. This Agreement
may not be modified, amended or supplemented except by way of a writing signed
by a duly authorized representative of each of the parties hereto.
21. SEVERABILITY. All of the provisions of this Agreement are intended to
be distinct and severable. If any provisions of this Agreement is or are
declared to be invalid or unenforceable in any jurisdiction, it shall be
ineffective in such jurisdiction only to the extent of such invalidity or
unenforceability. Such invalidity or unenforceability shall not affect the
balance of such provision, to the extent it is not invalid or unenforceable, or
the remaining provisions hereof, nor render invalid or unenforceable such
provision in any other jurisdiction.
22. NO WAIVER. The failure of either party to this Agreement to insist
upon the performance of any of its terms and conditions or the waiver of any
breach of any terms and conditions of this Agreement, shall not be construed as
thereafter waiving any such terms and conditions, but they shall continue and
remain in full force and effect as if no forbearance or waiver had occurred.
23. NOTICES. Any notice provided for concerning this Agreement shall be in
writing and be deemed sufficiently given when sent by certified or registered
mail if sent to the respective address of each party as set forth below.
If to Townsends:
Townsends, Inc.
401 South DuPont Highway
Georgetown, Delaware 19947
Attn: David Burton
Fax: (302) 777-6660
If to Kahiki:
Kahiki Foods, Inc.
1100 Morrison Road
Gahanna, Ohio 43230
Attn: Julie Fratianne
Fax: (614) 322-3189-
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same Agreement. This Agreement may be
executed and delivered via electronic facsimile transmission with the same force
and effect as if it were executed and delivered by the parties simultaneously in
the presence of one another.
25. GOVERNING LAW. The construction, validity and performance of this
Agreement shall be governed in all respects by the laws of the State of
Delaware, without regard to principles of conflict of laws.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
TOWNSENDS, INC.
By: /s/ David Burton
--------------------------
Name: David Burton
Title: Vice President
KAHIKI FOODS, INC.
By: /s/ Michael Tsao
--------------------------
Name: Michael Tsao
Title: Chief Executive Officer
EXHIBIT A
RAW POULTRY PRICING SCHEDULE
Townsend Chinese Nugget Product #: 8654
Raw Material Description: Bulk Tenders
Delivered Price/Raw Material Cost: $1.20 per pound
EXHIBIT B
PRODUCT SPECIFICATIONS AND PRICING
Townsend Chinese Nugget Product # 8654
DIRECT COSTS KAHIKI PRODUCTION COST
(to be Based on Actual Results)
Meat Cost $1.200 SEE ATTACHED.
Yield 138%
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Adjusted Meat Cost $0.867
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Ingredient Cost $0.258
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Total Material Cost $1.125
Direct Labor $0.306
Packaging/Direct Overhead Cost) $0.250
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Total Prime Cost $1.681
10% Copacking Margin $0.168
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Total Copack Cost $1.849
(F.O.B. Kahiki)